Why The Stock Market Is Jumpy And How To Handle It

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This morning we’re talking about the recent turbulence in the markets. What have we seen lately?

There is no denying that the markets have been choppy in recent weeks. After a very strong period at the beginning of the summer, the NASDAQ fell by 3.75% in the past two weeks, while the Dow Jones shed just shy of 3.5% and the S&P 500 was trimmed by 3.15%. These sort of pullbacks can really cause everyday investors to get anxious, so I want to put this into context, explain why we are seeing some bumpiness in the markets, and what to keep in mind going forward.

 What is behind the downward trends the past two weeks?

Let me start with some context.The longest bull market in history is still in effect. Stocks are up both year-over-year and year-to-date. No one needs to be yelling about the sky falling at the moment. That said, there have been a number of factors that have put negative pressure on stocks.

The elephant in the room continues to be the tensions between the United States and China. As I mentioned last week, the possibility of tariffs going into effect on the remaining $300 billion worth of goods we import from China worries individuals, retailers and manufacturers alike.

It has also caused concern among investors about corporate revenues and profits. In addition, the possibility of painful retaliation on the part of China is growing. Last week, the Chinese government let the value of the yuan, the country’s currency, fall against the dollar to a level not seen since 2008. This makes Chinese exports cheaper, countering some of the tariff increase and boosting sales of Chinese goods around the world. Investors also had a negative reaction to this news.

Outside of concerns about China, there are concerns about slowing economic growth abroad (we learned the UK’s economy shrank for the first time since 2012 last week) and at home, indicated by the Federal Reserve’s rate cut. Put together, these factors account for much of the negative sentiment that has resulted in downward pressure on stocks.

 Have we seen anything that should buoy investor spirits?

 As I mentioned last week, the fundamentals of the American economy continue to look healthy. Job growth, together with wage growth, has remained steady in recent months, consumer confidence remains high, and corporate balance sheets remain strong. These things should give investors some solace, but the news over the past two weeks has been tough to swallow for many.

Do you have a rule of thumb for times like these?

 It’s time in the market, not timing the market, that will get you the best results. There are two big mistakes that people make in times of volatility. The first is to get anxious. For most of us, it is easy to think about what is happening with or investment accounts with every dip of the indices. Resist that urge! Keep in mind that your retirement account is for the long-term. You also want to remember that timing the markets is a bad strategy. When the markets are bumpy, stay patient. Slow and steady wins the race.

What SHOULD we be doing if not getting out?

Stay the course. Keep making contributions to your accounts each month. Called dollar cost averaging, this technique means you invest your money in equal portions, at regular intervals, regardless of the ups and downs in the market. Also, when you do this, you end up buying more shares of an investment when the share price is low and fewer shares when the share price is high, which often means you end up paying a lower average price per share over time.

If you are still worried about the market volatility’s effect on your investments, reach out to your financial advisor or the people who oversee your 401(k) program. Take the time to ask them about your investments, making sure your portfolio is correctly allocated for your age and the current economic climate. They can help you calibrate the risk and diversity of your investment accounts. At the end of the day, if you put the short-term bumps out of your mind and keep contributing, you can be confident you are on a good path.

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