Balancing Concerns on the Downside

When we sent our email on market conditions January 11, stocks had just plunged 6% in the first week of trading. Yesterday February 3, after a nearly 400 point gain on Friday and a 300 point loss on Tuesday, the Dow is at 16,153, a loss of 7.3% for the first 21 days of 2016. Since that first week stocks have only fallen 1.3%, but done so amidst day after day of gut wrenching and painful volatility. 

Over the last nearly 20 years, our clients have experienced, and successfully recovered from two severe bear markets, in 2002, and of course in 2008-2009, when the entire global economy was shaken to its core.  We know markets can fall further. It seems likely that stock prices will retest their lows before consolidating for a move ahead.  

However, we can balance our concerns on the downside with the positives, without being blindly optimistic or unrealistic. The U.S. economy continues to strengthen.  Jobs are being created. The index of leading indicators are not at this point showing a downturn that usually precedes a recession. (See below.) 

Most stock declines we have experienced of this magnitude right themselves within the following year; even in 2008, when a price bubble in real estate combined with a financial crisis sent stocks down by 46%, they recovered their losses in 24 months. Markets ultimately reward investors who prepare for challenging markets with a well thought out allocation and stick with their plan;  Schwab research has provided this information of the six years with the worst ten-day periods starts, and how they progressed throughout the rest of the year.

Investors who try to time, or sell into declines do so with considerable risk. The S&P 500 has returned 9.85% annually over the 20 years ending 12/31/2014. If you missed 30 of the best market days, your returns would have been cut to 1.49%!  

We are here to address all of your individual concerns and are available to meet with you or speak to you at any time during this difficult period. Don’t hesitate to call us.

Yours truly,

Steven Weber
Registered Investment Advisor
The Bedminster Group

TAGGED: Market Insights
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