This rare mid-month missive will be brief and hopefully to the point. We’re in the midst of a mini-correction that I’ve been predicting would happen for quite some time. The stock market had a brutal week, shedding all gains for 2018. Volume was exceptionally heavy, but orderly. The major averages are now between 6 and 8% lower than their all-time highs from late September. Markets always go down far more quickly than they rise, and this decline is no exception.
Corrections, no matter how steep or swift, are never pleasant. However, they happen occasionally and are cleansing overall for the market. I cannot tell you with any clarity how long this one will last or how much deeper it might be. I do, however, feel that there is absolutely no need to panic. The stock market may indeed be in a later portion of the nine year bull market cycle, but positive markets traditionally do not end when corporate earnings are strong. Some of the metrics are changing – higher interest rates and fuel costs, fallout from tariffs, angst over the mid-term elections. As I’ve mentioned countless times in the past, Wall Street hates uncertainty. The VIX, or Volatility Index, is embodying this nervousness as we speak. But, as the famous philosopher once said, this too shall pass.
Where should we go as investors? I’m staying put with my portfolio because I’m refusing to listen to cognitive dissonance. If the trough extends, I’ll think about putting more money to work. That being said, we’re all different, and so we as a team want to be attentive to your needs.
Market corrections are a great time for portfolio review and investment goal focus. Please let us know if you’d like to chat. As a long-time advisor, I like to think about the positives that can stem from a downturn. One important item is that we may be able to productively harvest stock losses in non-retirement portfolios. This will allow us to offset gains from earlier in 2018, and perhaps create a multi-year deferred tax asset. We had little or no opportunity to cull last year. If the markets won’t give us performance per se, we can at least enhance your tax scenario. Secondly, there are some new products that can give equities exposure with protection against negativity. We can talk about them with you if you like.
The bottom line is to breathe. It’s not comfortable out there, but it’s normal and to be expected. All of us have survived much larger corrections before by staying patient. Hang in there… try not to pay too much attention to Chicken Little. Kelley, RC, and I look forward to hearing from you.
The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.