From Y2K to 9/11 to the European debt crisis to Brexit, there will always be reasons not to invest in the stock market.
The latest reason? An ongoing trade dispute between the world’s two largest economies, China and the United States. After the U.S. announced expanded tariffs on Chinese goods, and China has responded in kind, the market stumbled.
The trade war has already hurt farmers, and will impact consumers soon. But as investors, it’s important to watch the market’s response in context.
The truth is, the marketplace always appears to be on the precipice of decline. However, keep in mind that the most recent dip comes after a record-strong start to the year, and amid a record-long bull market. The market is cyclical, meaning a check is most likely due.
Investors need to remember that:
- It’s normal to see swings of 10% or more each year, as the stock market must pause, re-price, and possibly move higher
- A single closing-day drawdown of 2.5% and an intra-day drawdown of 4.5%, which we have seen this month, represent normal market action
- The media is driven by sensationalism, and clickbait headlines don’t usually serve investors well
- The market eventually gets back to what matters: the fundamental growth of ownership in corporate earnings
While market volatility is difficult to navigate, it’s also simply the price investors pay for positive returns over time. We need to be prepared for it, and temper our reactions according to facts, not headline-grabbing geopolitics aimed at our emotions.
And consider this: the recessionary indicators are not flashing red. The market can still move higher based on low interest rates, subdued inflation, and earnings growth that’s outperforming analyst expectations.
So in the wise words of Wilson Phillips, hold on for one more day.
At CLS Investments, we will continue to manage our portfolios to their stated Risk Budgets, and diversify across several economic regimes, asset classes, and high-quality bonds. To learn more, contact us here.
CLS Investments is a participant in the ETF Strategist Channel.