Please, join us in welcoming Nancy Overton to the firm as a Financial Advisor. Nancy comes to us with over 25 years experience in the financial services industry. Nancy lives in Jacksonville, FL, and works at our new satellite office in downtown Jacksonville. Please, see her picture and full bio on our website on the Who We Are page.
We have left Alex’s commentary up for some time. It continues to be relevant as interest rates generally continue to climb. Bond valuations in accounts (and on statements) continue to show lower valuations in many cases. This is due to the rising interest rate environment. For our clients with individual bonds, you should know that we have been anticipating this and have been positioning portfolios for this. It is also good to remember, barring a default, when we buy an individual bond we know by maturity date or call, exactly what our overall return will be. If that return is not a net positive to our clients, we obviously would not buy that bond. When looking at an account balance and seeing bonds down in value, it is good to remember that regardless of valuations in the meantime, the ultimate outcome is a known positive (again, barring a default).
Partially due to interest rates, volatility in the stock markets has increased. Big swings in stock markets can be unnerving. One should think in terms of percentages, though, instead of the number of points reported on the news. With the DOW at over 25,000, a 400 point swing, for example, is only a move of about 1.6%. For stock markets, that is a relatively common move.
As this is being written before the open of the US markets on October 23, 2018, the DOW is down 6.06% from its recent all-time high. The S&P 500 is down 6.29% from its recent all-time high. The NASDAQ is down 8.17% from its own recent all-time high. A stock, or stock market, is considered to be in “correction” once it has declined 10%. As of yesterday’s close, none of the three major indices is in correction. The market indices have already declined about 10% or more once this year. It is typical to have at least one 10% or more decline per year in an upwardly moving market. It is likewise typical to have at least three declines of 5% or more, but less than 10% in a year. So, while the volatility may be making some nervous, the stock market is really behaving quite normally.
With many of the news outlets giving play-by-play, emotional reports on the volatility it is good to focus on the fundamentals of the economy and of your individual portfolio and overall strategy. As for portfolio strategy, unless your personal situation has changed it is generally the wise thing to do to stick to the strategy, knowing markets swing in prices and that is okay. When large swings occur, rebalancing allocations and buying more of good positions that have declined is usually the right thing to do.
Looking at the economy, the news is almost all positive. Unemployment from multiple measurements is at or near all-time lows. Job openings are at an all-time high, over 7 million for the first time in history, as companies are looking to hire and expand. Also, for the first time since modern record keeping, there are more job openings than people looking for jobs. Wages are beginning to rise slightly and consumer confidence is high. Over 70% of corporations reporting earnings so far this quarter have beaten analysts’ projections. Multiple economists have used the word recently, “Goldilocks,” to describe the almost perfect conditions of the economy. A good economy should lead to higher corporate earnings and, normally, as earnings rise so do stock prices.
Thus, barring anything unexpected, the recent pullback in prices is likely nothing more than that. As already mentioned, price declines and volatility are just normal market moves. Focusing on fundamentals and knowing why you have the strategy that you do should help reduce nerves. It is also helpful not to approach markets and investing emotionally. It can be easier said than done, but one should try.
We continue to watch markets and developments closely. As markets and conditions evolve, we are working to try to take advantage of things for our clients and to continue to monitor risks. We also encourage you to contact us with any specific concerns; we are always happy to review your portfolio and strategy with you.
Richard Tomes, CFP®
Total Wealth Planning and Management, Inc.
822 A1A North, Ste. 310
Ponte Vedra Beach, FL 32082