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Is the Market Correction Giving You a Scare? Remember This

Drew Barnes, CFP®
October 30, 2018

Back in July I wrote a blog post about what to consider if you are worried about a downturn in the stock market (see that post here). Well, here we are about 4 months later, in the middle of a “downturn.”  How severe and how long the downturn lasts remains to be seen. The broader indices that are commonly tracked (i.e. S&P 500, Dow Jones Industrial Average, NASDAQ Composite) are now either in, or close to, correction territory.  A stock market correction is defined by a 10% decline from the most recent high.  Now that we are experiencing somewhat of a downturn, let’s revisit some of the items discussed in my previous post.

As I mentioned above, a stock market decline of 10% qualifies as a “correction.”  While a stock market correction may make you feel fearful, let’s add some context.  Since 1980, including 2018, the S&P 500 has experienced an average intra-year decline of 13.8%*.  Despite that average intra-year decline, annual returns have been positive 29 out of the last 38 years, or approximately 76% of the time.

Naturally, we are now being inundated with fearful headlines from the financial media.  We serve as a constant reminder to our clients that declines like these are normal, expected, and have always been temporary.  While the news stories and headlines present a “scary” picture, here are some statistics and information that show just how strong of an environment the U.S. is currently in:

  • 2nd Quarter 2018 GDP Growth was 4.2%.*
  • 3rd Quarter 2018 GDP Growth was just released with an initial reading of 3.5%.
  • The September 2018 unemployment rate was 3.7%.*  This is the lowest unemployment rate in over 40 years.
  • Inflation remains stable and below historical averages.  The August 2018 Headline Consumer Price Index (CPI) reading came in at 2.7%.*
  • S&P 500 corporate profits have come in at a record high each quarter since the second quarter of 2017.  Company earnings are what drive the stock market over the long term.

I will wrap this post up with the same closing as my earlier post.  A theme that runs through all of the decades of stock market history is that – no matter what the headlines say – investors should continue to focus on the fundamentals and understand that markets will fluctuate. At M.J. Smith & Associates, we work with clients to establish a clear set of goals and objectives for their financial plans and use those as a blueprint to evaluate all investment decisions. Our company philosophy is to never time the market, mitigate decisions driven by emotions (fear and greed), and manage investment risk through broadly and globally diversified portfolios that are built to help achieve our client’s goals.  We do not let the negative headlines, or “noise,” dictate our decisions.

If you’re interested in M.J. Smith & Associates reviewing your portfolio and/or discussing options to help you understand the impact of your investments, please contact us today and we would be happy to talk with you.

* https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer

Any opinions are those of M.J. Smith & Associates and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

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