There has been a lot of chatter in the news about the stock market last week and yesterday and we just wanted to give a quick update.
Last week, there was some economic data released about the labor market that was disappointing to some investors and were viewed as negative. In addition, the Federal Reserve announced that they would not yet cut interest rates, which caused some investors to worry about a possible recession coming and the stock market, represented by the S&P 500, went down a few percentage points last week and yesterday.
But we shouldn’t necessarily be so worried about an impending recession as we feel the markets overreacted, which we will explain.
First, the data related to employment was actually still positive. It was projected that approximately 175,000 new jobs would be added but the numbers showed only 114,000 new jobs were added. So it was disappointing that the number was lower than projected but it’s important to note that the US is ADDING jobs still, not conducting layoffs resulting in losing jobs.
Second, the unemployment rate increased SLIGHTLY from 4.1% to 4.4%. While this is a slight increase, it is still a very good historically low number. Other economic data remains strable such as inflation, GDP, and consumer spending.
So while yes, the S&P 500 dropped sharply over a few days, that is only looking at a very short period of time. If we zoom out and look at the year so far, the S&P 500 is still up by around 9% year to date.
Some people who have portfolios very heavy in tech stocks and are overweighted in companies like Apple and Microsoft have have seen a deeper drop than those with solidly diversified portfolios in a mix of stocks and bonds. Diversified portfolios likely saw less of an impact.
So what should you do? Is it time to panic? NO!
It’s important to remember that market volatility is perfectly normal. We experience these kinds of drops almost every year. We may have become a little spoiled because the market has been pretty steadily going up for the past 18 months, to the point where we’ve forgotten what normal stock market volatility looks like. Volatility is normal every year.
So don’t panic. Don’t freak out. Don’t make yourself crazy. We can all learn a little something from Noah Lyles, the American Sprinter who is competing in the Olymics this year. You’re probably wondering what the Olympics has to do with the financial markets??
Noah Lyles just won the gold medal in the 100M Dash at the Olympics. And he won by NOT panicking. At the beginning of the race, he did not have a good start. He was slow coming off the blocks. At the 20-meter line he was in last place. At the 40-meter line, he was second to last. He could have panicked and let that be the end of him. Be he didn’t panic. He stayed the course, trusted his instincts, knew what he was doing, and in the end, got the Gold medal. NOT panicking helped him win.
As always, if you have any questions, you can feel free to contact your financial advisor. We are here to help support you through and help keep your long-term investment perspective.
Meanwhile, enjoy the rest of the summer!
There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. Indexes are unmanaged and investors are not able to invest directly into any index. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs, or expenses. Investing in securities involves risk, including the potential loss of principal invested.
