Ouch....that hurts! We've all said it before. Whether it was our sibling or friend punching us, a boyfriend or girlfriend dumping us, a loss of someone we love or any multitude of things, sometimes things hurt.
Fourth quarter markets of 2018 are another reason to say ouch. We've seen the general markets drop 20%+ from their peak in late summer and into 'bear market' territory. So what does all of this mean and, as investors, what should we be doing?
I've always found history to be a good place to start looking. Although the past does not guarantee future results, reflecting on history can help us take a step back and look at the forest instead of just the tree in front of us. I want to preface this by saying I am not a fortune teller so I am unsure what is going to happen with the markets, but I do believe in reading/listening to others viewpoints and coming to my own logical conclusion. With that said, here are some facts and my short thoughts on the markets.
According to marketwatch.com, the S&P peaked on 9/21/18 at 2930 and as of this morning it is at 2364....down almost exactly 20%. The bad....political environment, trade talks, housing has slowed a bit. The good....retailers are reporting good holiday season sales, the economy has been growing, wages have been growing, unemployment rate is still low, low tax environment.
Mostly good economic indicators but yet the markets are reacting differently. From there, I decided to look at bear markets in the past that occurred outside of a recession. From 1926 through September of 2018 we have seen eight 'bear markets' and 15 recessions. There have been three bear markets that have occurred outside of a recession. The average bear market outside of a recession has been down 24.5% and lasted 5 months. (As a matter of full disclosure the average bear market in general has lasted 1.4 years with an average S&P loss of 41%.)1
So what does this mean for all of us investors and what should we do? If we believe the economy is still strong and is not going in to a recession, we could be close to the bottom of the market. If we feel the economy is close to a recession we could be in for some more pain. How's that for a straddling the fence answer? Honestly, based on what I am reading I would side more on the former than the latter at this time. There are some wild cards on the table but history has always had a wild card or two in the deck.
As always, timing the top or the bottom is difficult. For the emotions of investing, having an asset allocation that meets your risk tolerance and time horizon is the number one thing we can do to help smooth out the ride. Regardless of markets, we are always here to have a discussion about your risk tolerance, time horizon and goals. We want to help simplify the financial jargon and help you make good decisions about your money so you can achieve those goals. Before you open those year end statements sit down, take a deep breath and know that we are just a phone call away. While we all know the sting of things that hurt, we also understand things will get better over time.
Enjoy the day!
Keith, Jared and Tammy