Good afternoon valued clients;
Market volatility has come back to interrupt the quiet of the normal summer. After a fairly good earnings season, the Federal Reserve moved to cut its key interest rate by 0.25% which was in line with what many experts had thought would occur. There were some who thought the interest rate cut should have been at least 0.50% while others who thought that no Fed rate cut was even necessary. This just goes to show you that you cannot please everybody, all of the time. After that rate decision was announced, the market seemed to turn its eye back to the ongoing trade war with China and was aided by a tweet from the President expressing frustration again with the slow pace of negotiations and another additional tariff on 10% of the remaining 300 billion dollars of goods and products coming from China into the U.S.
The markets did not approve of that message and last week saw a slight decline. Over the weekend, sentiment did not improve, and great sadness emerged from two horrific mass shootings in both Texas and Ohio. Additionally, word of China devaluing their currency adds fuel to the fire that a deal is still not close.
What will be the result of all of this, only time will tell in the short-term? It could be possible that for now, owing to intractable structural issues, the United States and China have likely reached an impasse on resolving these trade difficulties. The result could also be a permanent tariff regime that includes the 25% U.S. tariffs on $250 billion of Chinese imports and the imposition of 10% tariffs on roughly $300 billion of remaining Chinese imports. Some goods that cannot be sourced elsewhere, such as consumer electronics, will likely be excluded from tariffs.
What we do know however is that we have seen this type of volatility repeatedly over the recent and not so recent past, and in each of these cases the volatility does eventually resolve, and markets start to head higher.
Our advice is consistent in each of these events, and that is:
1.
Keep market volatility in perspective. These downturns and normal and typically short in nature.
2.
Do not try and time the markets. While it may be tempting to try to sell out of stocks the timing of when to get out and when to get in is impossible to get correct on a consistent basis, and the risks of missing the very best days to the upside can significantly affect your long term results.
3.
A normal, systematic, and unemotional method of re-balancing is a natural way to ensure that portfolio allocation never drifts too high or too low in any one asset class. This is a normal way to take profits from what has done well and reallocate those funds into other asset classes that may not have done as well, with the knowledge that there is usually a reversion to the mean and given time, asset classes go up over time.
4.
Develop and stick to a sensible plan. The analysis that we have run on your financial situation is always the blueprint to your success, and the ability to stick to that plan through good times and bad times will prove the key to your long-term success.
5.
If you are worried or feeling that you are having difficulty handling the volatility, we always ask that you let us know and we sit down and go over your own unique situation to give you more peace of mind based on our years of experience in navigating market volatility in the past.
We have posted on our website a piece from Hartford Funds titled: “
How to Learn to Worry Less and Love a Market Correction
.” This piece was put out earlier this year, after the market downturn in Q4 2018. It is a brief two page piece (with most of the pertinent information on the first page), and is something that can be useful to read over. You can access it on our website by going to our Guest Articles tab under Periodicals, or simply
click here
.
As always, please
keep in mind...
We are in the office, if you have any concerns, questions, we welcome them all and do not want anybody worrying unnecessarily.
