Last week, stocks went on sale again. The S&P 500 dropped 5.9% over five days, its worst week since January 2016. The bargain hunters didn’t step in to take advantage, yet.
It’s natural to question, why the decline? Often, there are no explainable reasons. Perhaps, this time feels different? Is it from the announcement of tariffs, leading to fear of retaliation against American products sold abroad? This could be a reason, or explain why expectations and values were reduced on the large multinational companies, those with vast exports and represent most of the major indexes.
The last time this happened, the tariffs involved steel and aluminum, and the panicked sellers later discovered that the impact on global trade was actually quite small, due to negotiated exemptions for major steel producing nations like Canada and South Korea—plus the Eurozone and Mexico.
Meanwhile, another reason can be bad news for the largest companies. Facebook, for example, the 5th largest on the index (now the 6th), was driven down almost 10% on the news of scandal, politics and Russians.
What’s remarkable about the selloff over things that might or might not happen is that it came amid some very good news about the U.S. economy. Durable-goods orders jumped 3.1% in February, sales of newly-constructed homes were solid, and Atlanta Fed president, Raphael Bostic, announced that there were “upside risks” in GDP and employment. Translated, that means that the economy is looking too good to keep interest rates as low as they have been. What a curious time to be selling out and heading for the investment sidelines?
Whether the reasons for the market decline is valid and will prove to stick longer term, only time will tell. However, for the past 25 years, I’ve seen how a buy and hold approach, both during good and scary times, has created impressive wealth for our clients. You know what they say, it’s not about “timing the market”, but instead “having time for the market to work” is the best ingredient for long term wealth creation. Hang in there, turn off the TV, and focus on something you can enjoy.