Market volatility is quite normal. Almost every year we see one or more market dips of between 3-10%. Occasionally the dips get upwards of 10-15%. Unless we have severe economic problems, these market dips have been short lived and the rebound/recovery each time has been much quicker than most people wish to believe. Unfortunately, it is too easy to believe the doom and gloom rhetoric.
Historically: In January of 2014 the stock market went down about 6% due to several countries devaluing their currency. In September and October of 2014, the stock market went down about 9% due to Ebola virus concerns. In August and September of 2015, the markets went down almost 10% over China economic worries and oil drop worries. Even bigger – in 2011 the market went down 19% in the 3rd quarter over early European worries. In six months or less all of these drops recovered their losses and moved upwards from there.
In Early 2016, we saw a market drop of approximately 12% from the first of the year through mid-February. This was a result of the price of oil dropping below $30/barrel. This suggested to some that economic growth was slowing down with less oil usage. Low oil prices sometimes signal this. It was mis-read by the doom and gloom crowd. The market for oil was out of balance; There was too much oil around driving down prices. This time the market bounced back by the Summer.
Recently, in 2018: There was a 10% drop in the markets from mid-January to mid-February. Interest rate and inflation fears got out of control. Again, the markets bounced back by the Summer of 2018.
And the latest; October through December of 2018 – the markets went down over 15% spurred by comments from the Federal reserve about rising interest rates at a faster pace. There are some accompanying concerns about trade & tariffs along with the age-old political squabbling. We believe that the interest rate worries were the main culprit here with the trade worries a distant second place. The political squabbling is feeding the cable news shows but is not concerning Wall Street and corporate America as much as the discussions of interest rates
Now… about recessions, which are economic/business slowdowns. Of the 4 most common factors which slow down the economy, none are currently threatening. The first 2 are interest rates and energy/oil/gas prices. These are still in the low to moderate cost range and not a threat to the economy. High interest rates slow down sales of homes and autos and borrowing for business expansion slows down. The other 2 serious threats to the economy are high taxes and expensive regulations. Taxes were just cut and should stay down for years. Regulations cost hundreds of billions of dollars per year for businesses of all sizes to keep up with. A major expense for business, they take lots of real money away from hiring, salary increases, investing and building. It’s rare to see anything resembling a recession when we have low taxes, low oil prices, low interest rates, and a reduction in costly regulations.
Economic recoveries and Bull markets don’t die of old age. They are killed off by bad government policy, rising taxes and interest rates, and installing lots of expensive regulations are what they mean by this. All 3 drain money away from business growth.
The other issue out there is the trade/tariff negotiations. Negotiations between the US and Mexico and Canada have resulted in a new deal to replace the outdated NAFTA accords. The Europeans seem eager to take steps to allow more American made products into their countries. Not a “done deal” but progress is being made. Negotiations with China are more complex and will take a while longer. The Chinese have already agreed to buy more US rice and soybeans and have lowered their tariffs (taxes) on American built autos. These are very important steps in our favor, yet not widely reported by the news outlets.
While our overall viewpoint is positive in nature, we realize that each of our client’s has a personal and unique situation. Our responsibility is to continue to monitor the economic environment so that we may make educated decisions on how best to put your investments to work. We very much appreciate the trust you, our clients, have placed in us and please know that we are always available to meet or speak with you at any time. Thank You!
These are the opinions of Brian Cassidy, Arnold Magid and Dan Kelly and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is no guarantee of future results.
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