TGIF and what a Friday it was…
Written by: Steve Bouchey
Investors who were disciplined enough to stay the course and those that took the opportunity to add stocks to their portfolios were rewarded today with one of the year’s biggest daily gains for the DJIA. The Dow has lost almost 1000 points over the past month and rallied 264 points today.
The past six weeks have not been pretty and most stock market indices are down approximately 6% since September 1st. But, it’s been three years since the stock markets have had a correction and most investors forgot what volatility felt like. This is not the time to panic or start selling, if anything, it may be a good buying opportunity. I know that sounds like a cliché, but we get paid to monitor the markets and looking ahead at what is coming, things look decent for the economy and stocks. We took this opportunity to invest available cash during this correction and feel it will be a wise move. That doesn’t mean the markets won’t continue to act volatile but it is a decent time to enter the market if you have a long-term time horizon.
Why are we optimistic? The biggest factor is the economy is getting stronger, little by little, it’s chugging along. Unemployment is under 6% and more workers are finding jobs than they have been for years. US consumer sentiment rose in October to the highest level in more than seven years. Remember, the US consumer makes up almost two thirds of our economy…the better they feel the sooner we will see the economy move along. Best of all, interest rates are still at historic lows, anyone looking to buy a home or refinance may never see a better time than now. Unfortunately, savers aren’t as happy, but someday, interest rates will go up again and when they do, their patience will pay off.
This correction should not have been a surprise to investors. There has been anticipation of increased volatility in the market and in expectation we reduced some of the risk in our portfolios over the summer. In most cases, volatility should be looked at as an opportunity to take advantage of buying into asset classes that might have been too expensive. Another adjustment we made to portfolios is that we have shortened the duration of our bond portfolio after seeing interest rates drop this week to under 2% as measured by the 10-Year Treasury Note. In our estimate, there is only one place for interest rates to go from these levels and that is….….it may take time and we will wait.
Enjoy the Indian summer weather and if you have a well-diversified portfolio with the appropriate level of risk that you can tolerate , then don’t worry …. the markets will recover.