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How Scared Should You Be?

| April 04, 2018
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You want the short answer? Maybe. It depends on which type of stocks you own, which types of sectors you own and your investment time-frame mindset. Notice I didn’t say your time-frame by itself. What I mean is that in situations like this, (a down stock market) your stock market mindset is critical. Meaning, why are you investing? A quick profit? A little growth in the short-term? Or are you more long-term in your investment mindset? Looking for some quality investments that you can hang on for the long run?

I bring this up because if you’re a short-term trader/investor looking to make a quick buck it may be a little more difficult to do so in this choppy environment. After relative calm in 2017, volatility has made a viscous comeback in the 1st quarter of 2018. Last year, the S&P500 went up 12 straight months. That had never happened before in the history of the stock market.[1] Ever. There doesn’t seem to be one singular reason for this stock market drop per say, but it’s happening none the less. If you listen to big media they’re going to blame it on such things like:

  • A “trade war” with China.
  • Rising interest rates and its effect on bonds and consumer consumption.
  • Technical trends such as “resistance levels” and 200-day moving averages being breached. (You’ll also hear terms like bearish indicators, leading indicators, and economic fundamentals)
  • High-Frequency trading and algorithms from institutional trading.
  • Panic selling by mutual funds, hedge funds, and/or big institutional firms.

So, if you’re a short-term trader, if you ask me, your ability to make profits will be a little more challenging in this environment.

Now, if you’re a long-term investor (as nearly all my clients are), should you be afraid of stocks? No, not really. What we’re seeing right now seems to be a healthy, normal, regular and expected pullback from record highs. What goes up, must come down I’ve heard it said. The good news? While stock market dips/corrections/bear markets are both frequent and scary, none of the markets have ever stayed down permanently. We’ve always gone higher. Want more good news? Ok I’ve got some:

  1. The U.S. Institute For Supply Management®(ISM®) index is sitting at 59.3, just of a 14-year record of 60.8 back in February. [2]
  2. The U.S. unemployment rate is at 4.1%(February of 2018) which is a 17-year low. [3]
  3. On March 29th, consumer confidence was at 101.7 which is the highest level since 2004.[4]

There’s some good news for you.

So, to answer the question as to whether you should be afraid of this stock market drop, the answer is maybe. It all depends on what you’re investing for and how long you’re investing for. Folks, I wish I was able to tell you exactly where we’re headed but I don’t know. I don’t know how much longer this down stock market is going to last.

Here’s what I do know. Economic fundamentals appear to be positive. Consumer confidence does also. Unemployment is down. There are things out there to feel good about it, but you’re probably not going to find them on CNBC, Bloomberg and/or Fox Business. But, that’s a conversation for another day.

I also want to add that while many economic fundamentals appear to be encouraging, that in no way assures that we are not in the midst of a bear market. A bear market can live during an undisputed growing economy. What I’m trying to say is that just because the economy is good/growing doesn’t mean that a bear market can’t happen. Is that my prediction? Nope. Last time I checked my business card it didn’t list me as a fortune teller or list my name as Nostradamous. Anything can happen folks, both good or bad.

Okay, that’s it. I’m done.

To talk to me more about your personal situation please reach out today. You can get in contact with me on the homepage of this blog on the “Contact The Anxious Advisor” tab.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and no guarantee of future results. All indices are unmanaged and may not be invested into directly. Stock investing involves risk including loss of principle. No strategy assures success or protects against loss.

[1] Source: https://www.google.com/amp/s/amp.businessinsider.com/us-stock-market-higher-every-month-in-calendar-year-2017-12. December 29th, 2017.

[2] Source: http://advisor.marketscope.com/#/marketscope/economyWatchArticle/ECOOL/1002215151/mainPage. April 2nd, 2018.

[3] Source: https://tradingeconomics.com/united-states/unemployment-rate. April 2nd, 2018.

[4] Source: https://www.advisorperspectives.com/dshort/updates/2018/03/29/michigan-consumer-sentiment-march-final-highest-since-2004. April 2nd, 2018

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