The market has had an interesting couple of days recently, to say the least. It reminds me of the song Spinning Wheel from Blood Sweat and Tears (you can find the song on YouTube for you younger readers), “What goes up must come down, spinnin’ wheel got to go ‘round”.
I was asked by Wood-TV8 on Monday night, after the Dow dropped 1,175 points, to provide some perspective on what it means. After all, a drop of that magnitude catches the attention of just about everyone. Here are three things to keep in mind.
- Keep it in perspective – The point drop was the largest ever, that’s true. But in terms of percentage declines, it didn’t even make the top 20. At its worst on Monday afternoon, it amounted to a 10% correction. The Dow was still up nearly 5,000 points from a year ago.
- Not all declines are the same – This is important to remember. 10% declines happen almost every year. 2017 was the exception, not the rule. When the economy is strong, these pullbacks prove to be temporary, as fundamentals win out over valuation. During periods of economic weakness is the time to be more concerned. Today, the economy is in good shape.
- Know your risk tolerance – If the moves in the market the last few days are causing you concern, you may need to revisit your tolerance for risk. Market volatility is likely here to stay for a while. You’ll likely get the opportunity to recoup much of the losses of the past few days in the coming weeks and months. Make adjustments to your portfolio if necessary.
It’s natural to have questions about what all of this means and how it impacts you. It’s why we’re here. Feel free to contact me at sdoorn@legacygr.com.