Sharing our take on current news stories.
Last week, global equity markets partially corrected, causing an onslaught of worrisome media pieces. We addressed this with our clients, and want to share our thoughts on this event with you, as well.
- The correction was led by technology stocks that pushed the S&P 500 index 3.3% lower from the start of the day on October 10
- This drop followed escalating negativity from investors, who fear global trade tensions and rising yields will cause significant headwinds to the strong year equity markets have had
- A report from the IMF – suggesting global growth had reached its peak – may have been the final breaking point
This news is nothing to balk at, but media outlets have been riding this wave and hyping it up to sell the story. It's important not to get caught up in the hype. We're not suggesting a correction is something to ignore, and we don't take it lightly, but it's important to look at it from a bigger picture.
The good news? Despite last week's drop, the S&P 500 is still up 11.1% on the year (as shown in the chart below). Fundamentals are also still going strong: US unemployment is at record lows and the economy is strong, albeit some of the stimulus (like tax cuts) are short term. Corrections are normal, especially when the market is climbing as much as it has. This is the third time this year we're seen a drop of more than 3% in a single day; this most recent drop is not unique.
At the end of the day, markets are extremely hard to predict. While you may be feeling uncomfortable after the recent moves, especially after reading the headlines, it's important to keep calm and collected. Chasing the news and trying to time the market is not a good strategy, especially when it comes to your long-terms goals. This correction does not change our broader strategy, and if you are a long-term investor, we don't think it should change yours. If anything, corrections like this offer an opportunity to invest or rebalance and lower your dollar cost averaging. Our advice is to stick to your plan.