News

Should You Play Trick or Treat with This Stock Market?

31 October 2018

Yes, the stock market is down. As of October 29, 2018, the S&P 500 was down 9.54%, the Dow Jones Industrial Average was down 8.50% and the NASDAQ was down 12.03% for the month of October.

Some factors impacting the current market correction are:

GDP

The GDP growth appears to be slowing. In the second quarter of 2018, we experienced (annualized) growth of 4.2%, and the third quarter saw growth of 3.5%, representing one of the strongest six-month periods for the U.S. economy in the past decade.

However, the Federal Reserve is estimating fourth quarter growth of 3.0%, and for the first quarter of 2019, growth of 2.5%. Some private analysts agree that a slowdown is on the horizon.

A Wall Street Journal survey of economists showed agreement with the Federal Reserve’s prediction of 2.5% growth for the first quarter of 2019, dropping to 2.3% by the third quarter. The Federal Reserve is predicting a further slowdown by 2021 – to a mere 1.8%.

Housing

Housing, along with other interest-rate sensitive sectors is showing signs of a decline, with new home construction contracting during five of the past six quarters.

Tariffs

President Trump’s imposition of some $200 billion in tariffs on certain imports from China affects manufacturers and other providers of goods, who are quite reasonably fearful that these tariffs will force their own prices higher.

Anxiety can fuel both up-ticks and down-ticks in the market.

Declines such as this are good and bad – they cause people to lose money, of course, but also provide the opportunity to purchase sound investments whose drops in price are likely to be temporary.

Trick or Treat?

So, what should you do? Is the current down-trend a trick, or a treat in disguise?

The answer, as is often the case, is equivocal – it depends. On you – your situation, your goals, your family, your age, whether the investment in question is held in a retirement account or an individual brokerage account, your risk tolerance. Etcetera. There is no one-size-fits-all answer. There rarely is.

One thing I would strongly advise against doing is reading one single article on the topic and rushing to take action immediately. Do not sell or buy impulsively. That is a trick, not a treat.

There are certainly some opportunities presented – certain mutual funds, ETFs, stocks, which are at good prices now for investment. And there may be holdings you would do well to consider buying. But this all depends on your individual circumstances, as we note above.

It may be a good idea to rearrange part of your 401(k) investments – that might prove a treat. It probably is not a good idea to sell off your entire portfolio – that, in my opinion, is a definite trick.

If you are considering a particular investment which has lost value, think about how you would feel if the value of this investment continued to drop, at least in the near-term. If it would disturb you, cause you consternation, think of it as a trick to avoid. Do not forget the tax implications of stock and mutual funds sales outside of your retirement accounts.

If you have questions on how to best evaluate and potentially reallocate your investments, please click here to email me directly.