Volatility remained in the global markets this week. Relatively substantial drops in the major US equity indices occurred Wednesday, only to see those same indices rebound significantly the next day on Thursday, with Friday seeing the S&P 500, the DOW, and the NASDAQ all closing lower for the week.
The driving forces behind this week’s volatility seem to be the same that we’ve commented throughout this year: fears of escalating trade issues between the US and China, concerns around rising interest rates in the United States, and said impact on company earnings and general economic growth.
Some big tech names such as Amazon and Alphabet underwhelmed investors with earning reports that while positive, were not as positive as expected. Other names such as Tesla, surprised to the upside.
S&P 500: 2659 (-3.9%)
FTSE All-World ex-US(VEU): (-3.5%)
US 10 Year Treasury Yield: 3.08% (-3.81%)
Gold: $1236 (0.7%)
EUR/USD: 1.14 (-0.9%)
- Monday – News reports focused on thousands of Honduran migrants who are passing through Mexico with the intent to enter the United States.
- Monday – Tesla announced that it would be releasing its 3rd Quarter results more than a week early. Results were good, and Tesla closed up over 25% on Friday from Monday’s close.
- Tuesday – Caterpillar and 3M, two major industrial companies, saw their shares trade lower on earnings reports that listed concerns such as a more expensive US dollar (relative to foreign currencies) and declining demand in China.
- Tuesday – President Trump was interviewed by the Wall Street Journal, and much of the reporting surrounded his critique of the Federal Reserve’s interest rates hikes. Presidents over the past several decades have typically avoided commenting on Federal Reserve actions.
- Wednesday – US major market indices declined significantly, with technology stocks driving much of the declines.
- Thursday – US major market indices rebounded from Wednesday’s drop-off.
- Thursday – Amazon reports a profit for its Q3 earnings, but revenues were not as strong as hoped, with Amazon indicating that the holiday season could see slower growth. As one of the first $1 trillion companies, recent results beg the question of how long Amazon will be able to maintain its gorilla status. Our Q3 Report speaks about the difficulty of staying a top contender for long.
- Friday – Major US equity market indices closed down over 1-2% from Thursday’s rebound, ending the week in the red.
- Friday – As of Friday morning, one individual was taken into custody by law enforcement officials, related to the recent string of mail bombs sent to prominent individuals affiliated with the Democratic party. The number of discovered mailed bombs increased from 10 to 13 as of Friday as well.
Occasionally, writing these pieces can be an exercise in finding something engaging for readers. This week was not one of those weeks. With continual releases around Saudi Reporter Jamal Khashoggi’s death in a Saudi consulate in Turkey, a rollercoaster of emotions during this week’s market fluctuations, and an impending election cycle across the United States, there is a lot happening.
Of course, the follow up question many of you might have (and which I certainly hear from friends and acquaintances outside of work) is some form of the question “what does that mean for the markets, and what should I do about it?”
Many times, I wonder how my answers are perceived. The truth is, it’s impossible to tell exactly what will move the markets or how. I suspect people may not like my answers because it’s natural for us to want specific, concise, and easy to understand answers to our questions: “Boil it down for me so I can take action!” Yet I fear that my answer to the question of “how do I react to what’s happening in the markets?” may instill a similar reaction to someone stating that they enjoy eating lemons raw: “try not to react at all.”
Granted, I don’t know who you are and what your situation is, reader, but I can tell you that the vast majority of the time, reacting is exactly what you should avoid doing.
That said, reacting is different from ‘doing something.’ Here are a few thoughts on what you can focus on to help better position yourself for whatever the markets give us over the coming months and years:
- Start from a point of strength. Specifically, be diversified. If you’re in the right portfolio to begin with, you’ll feel less need to react. Said differently: avoid putting yourself in a position in which you feel a strong need to react. This can not only help you sleep at night, but it also improves your chances of long-term financial success.
- Keep things in context. Over the past 100 years, there have been good market periods and bad market periods. Overall, markets have expanded, and investors have been richly rewarded. There will always be concerns and fears about what will happen next, and there will be bear markets in the future. Those who expect otherwise will be disappointed and may react as a result of their disappointment. When investing, always remember that nothing is guaranteed.
- Focus on what you can control. Rather than trying to make your portfolio do exactly what you want every day, take other steps to make your financial goals achievable. How much you save today, when you retire, and what you spend in retirement are all relatively controllable items you can take action on. More granularly, make sure you are tax efficient in your investing, and that you’re methodically rebalancing. As a general rule of thumb, avoid any decisions that are being made based on a ‘gut feeling.’
- Talk to someone. Finances are an emotionally charged subject. A good financial advisor acts not just as a knowledgeable resource but as someone who understands how critical the emotional aspect of investing is. Being an advisor is half financial know-how and half being a great listener. Investors are less likely to make emotion-based decisions when they have someone to talk through things with. Having an advisor to talk to is a value that can be hard to quantify, but anecdotally I’ve lost count of the number of clients I’ve helped avoid reacting to the latest fear, only to have them come back and thank me later.
- Take a break. If all else fails, take a bit of a break from watching the rollercoaster. Give yourself some time away to just let the markets do what they’re going to do. Naturally, this works better if you’re not directly managing your own finances.
All this is to say – Personal Capital has been talking about the importance of a balanced, diversified strategy for some time now, and this week was a great example of why diversification matters. We hope everyone has a safe and enjoyable weekend.