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October Market Volatility

As you arise this morning, you likely know already that the global stock market fell very sharply yesterday. It was the worst day for markets since this past February. The selloff continued overnight in foreign markets, pushing them downward toward their 20-month lows.

Predictably, the news media has a wide variety of things to blame for the simple reality that there were a lot more sellers yesterday than buyers, fueled heavily by machine-trading. Some blame interest rates rising, while others blame trade wars and tariffs, and others blame the Fed.

We need to stop trying to blame anyone or anything, and just accept that markets do this from time to time. Make no mistake, it does not feel good when it happens, but it is far more common than we realize.

And most importantly, times like this are why high-quality bonds are so important to have in a portfolio.

As a brief reality check, this is the 23rd time that the S&P 500 has dropped 5% or greater from its peak since March of 2009. On average, the recovery period has been 42 days. All of them seemed like the world was falling apart at the time. And each time, the market recovered. Continue reading “October Market Volatility”

Musings on Trade Wars

(Edited from commentary by Larry Swedroe, Director of Research for The BAM Alliance)

SwedroeFor some time now, investors have been very concerned about the potential for a global trade war – a war in which there are not any real winners. That, of course, worries investors, especially those who were taught that the Smoot Hawley Tariffs enacted in 1930 was a major contributor to the Great Depression. While it certainly did not help, the causes of the Great Depression go way beyond tariffs, and the depth of the depression is mostly attributed to poor monetary and fiscal policy decisions by Central Bankers around the globe. The concerns have left many wondering what (if anything) they should do.

First, whenever an investor is concerned about any issue, they should stop and ask themselves this question: Am I the only one who knows about this? Clearly the answer is going to be no. As believers of the idea that market prices already reflect all publicly known information, it is reasonable to discern that stock markets not only reflect what we are reading in the news, but also the odds of these events actually occurring. Thus, unless you somehow believe that you know more than the collective wisdom of all the institutional investment managers, hedge funds and mutual fund professionals (who do about 90% of the trading, and thus set prices), it is too late to act.

Second, ask yourself if you think folks like Warren Buffet are aware of the situation. Again, the answer will surely be yes, and he isn’t doing any selling. Unless you believe you are smarter than Buffett, it is wise to take his advice and avoid trying to time the market.

Third, seek real analysis on the impact, not the opinions of talking heads on the television. Oxford Economics, a global leader in economic analysis and forecasting, calculated the tariffs with China would shave 0.1% – 0.3% off of GDP the next two years. This is a far, far cry from the doomsday scenarios being painted by the news media. We must reiterate here that forecasts are rarely perfectly accurate, but it undermines the reality that the results of a trade war are likely less than most believe. Continue reading “Musings on Trade Wars”