Controlling the Uncontrollable
With stocks continuing their abrupt southward snap to start the year, I thought you might appreciate an update. We don’t plan to make market commentary a regular weekly event, but it’s important for you to know what we’re thinking when all the media outlets (which have never actually met you) don’t shy away from offering their opinions.
The Dow is off over 8%, China’s market is down nearly 18%, and oil prices have fallen 20%, and we’re not even half way through the month. This week’s sell off continued on the woes of China’s economy and an oil glut that continues pushing prices ever lower. While some investors may sense a visit from market ghosts past, we don’t believe this is a replay of the 2008 financial crisis.
There is no downplaying the unease that has markets selling off, but the facts suggest the reaction is overdone. Yes, the slide in oil prices hurts the oil industry and related employment, but oil consumers get to spend less. Yes, China’s stock market has plunged, but China's investors represent a small portion of China’s populous, and government manipulation of the market is well known. Yes, upcoming year-over-year earnings are expected to be negative, but if you pull energy out of the equation, the story is different. And in the midst of the 2008 financial crisis, few understood what the issues truly were, while today the balance sheet of those financial institutions is stronger AND, now, closely regulated. Lastly, the 2008 run up was driven by huge accumulations of consumer debt. We are nowhere near those same debt levels, today. Granted, no one knows the eventual full effect of China’s down draft, but we do understand what is at play with oil – we’ve been here before and oil prices will eventually bottom out.
We do feel there will be more volatility ahead, but we also feel that markets will calm as they digest the Federal Reserve’s recent interest rate hike; when we find the bottom for oil prices, and when China’s changing economy begins to more clearly play out across the globe. Meanwhile, remember that consumer confidence rose in December, housing numbers are improving and unemployment remains near 5%. Also be aware, that stocks may be down, but bonds are up. We preach diversification for just this reason. (Sorry if all this makes your head spin a bit.)
Since we can’t control the markets (though some may try), what can we control? Here are a couple thoughts:
- Avoid panic selling and continue to focus on fundamentals. Just as realtor’s suggest buying the worst house in the best market, I suggest not selling a good company in a bad market.
- If you’re taking distributions from your account consider postponing them until the markets calm. I don’t propose going without the necessities, but control spending where you can.
- Whether you’re adding to your portfolio or not, any market pull-back is a good time for long-term investors to add to equities. It is also a good time for long-term income investors to add to dividend growth positions.
- Stop reading the headlines and watching those talking heads. Headlines sell papers and someone has to yap about something to fill the 24-hour news cycle. There are two sides to every story, and right now, the negative side keeps you tuned in to their channel.
The concerns and challenges are real, but so are underpinnings of a stable US economy. We can’t control the markets, but we do continue to monitor what makes them move.
As always, thank you for your trust and confidence, and feel free to call or click whenever you have questions or concerns.