“Remain Calm All is Well!” Remember Kevin Bacon in Animal House?
Those are the words I want to leave you with today.
The stock market made the news in a big way last week, with a lot of volatility and several people fearing this was the beginning of a longer-term downturn.
All sizes and types of U.S. stocks lost value last week but small and mid-sized growth companies were beaten up the most with losses more than 5% for the week ending February 9, 2019. Companies within the Energy (like Exxon Mobil and Chevron) and Communication Services (like AT&T and Verizon) sectors hurt badly with losses exceeding 6% for the week.
When we look around the globe, we saw the worst returns coming from Asia. Japan’s Tokyo exchange (Nikkei 225 Average JPY) was down more than 8%. Yikes! Canada and India performed best with just over a 3% loss for the week. By the end of the week, Europe moved in line with U.S. stocks.
We can officially say that the calm breeze of last year’s returns is over. Last year was terrific; we didn’t have to worry about much. The S&P 500 (total return price index) gained 21.83% in 2017 and 11.96% in 2016. We may have forgotten what it was like to lose money in the market. The S&P 500 hasn’t experienced a negative quarter since the third quarter of 2015. Well, we now have a reminder of more realistic times.
Let me take a minute to remind you of a few things to think about (there is no guarantee the below will occur going forward):
*When stock returns are negative bond returns tend to be positive, or at least not be as negative as stocks. U.S. bonds were able to give some small gains during the week with intermediate maturity government bonds return of 0.24%. Shorter-term maturity corporate bonds also gave slightly positive results.
*IPS or Treasury Inflation-Protected Securities and short-term bonds tend to do well in an inflationary or rising rate environment.
*When bank interest rates go up bond yields rise causing their prices to fall (the opposite is also true when yields fall bond prices rise).
*Holding bonds to maturity can protect you from falling bond prices.
*When bank interest rates begin to rise stock rates of return, tend to slow down.
*When bank interest rates rise bank stocks and the broad financial stock sector tends to do well.
*During a rising rate environment, there is a strong economy which will allow for companies to spend money on upgrading infrastructure and equipment, thus benefitting the technology sector.
There are still a lot of opportunities in the market. If you are feeling uncomfortable with the market and your portfolio you should do some research on the ideas above. Making a trade for a better opportunity isn’t a bad idea but trying to time the market may lead to disaster. If you had sold your stock positions in a panic when the market dropped drastically last week, you would have missed the upward bounce we experienced both Friday and today. Now you would have to time to market to get back in.
Make sure your portfolio is comfortably positioned for risk according to your sanity levels and remember to set a target AVERAGE return per year. Don’t just have the mindset only to be happy with the highest return that exists. Set your goals based on the average annual return and when you have a 21% growth in one year, you are still ok to achieve only a slightly positive return the next.
“Remain calm, all is well!”
Source: http://news.morningstar.com/index/indexreturn.html Data as of February 9, 2018
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