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MARKET HIGHLIGHTS: Q3 2015
The best thing about the third quarter of 2015 is that it is over.
By the close of the quarter, most investors experienced a significant decline in their portfolios. August was especially dramatic, delivering a stock market decline of 11% in a span of just seven trading days. During the final week of the quarter, there were net stock mutual fund redemptions of almost $30 billion—the result of investors rushing to the exits in an attempt to thwart further losses.
What happened to crush the optimism we’ve been feeling during the 6-year bull market that followed the Great Recession? Two stories dominated the headlines: the economic collapse in China and the Federal Reserve’s decision not to raise interest rates. China—the world’s second largest economy—saw its overheated stock market bubble burst and its currency devalued. The realization that China’s government isn’t a source for honest economic data cast doubt on China as the key driver of global economic growth. Although US economic indicators remain strong, the Fed opted not to raise interest rates because inflation hadn’t hit the 2% target established back in 2012. The decision to keep interest rates flat was interpreted by many as a sign of domestic economic troubles, adding to the near-panic that was already occurring on Wall Street.
Disciplined investors stay focused on long-term economic growth and avoid reacting to emotions. Even the most informed investors struggle to rise above their emotions when headlines scream and indices drop 10-15% in less than three months. Here are three facts that may help you through the turmoil:
- Year-to-date, losses remain relatively low.
Even with the recent volatility, the long-term direction of the market is always up. Unless you are forced to cash out all of your investments today, you’re still positioned for growth. (See my October 1 blog to learn more.)
- Bearish markets tend to follow bullish markets.
Predicting short term prices is a fool’s errand. This recent decline is a market correction (defined as a drop of 10% or more). Price declines are like pruning back overgrowth and create a healthier market going forward.
- The US economy is strong.
Consumer income, consumer spending, and housing starts are all up. Household net worth is at an all-time high, household debt has fallen by more than 30% since 2009, and home mortgage rates remain near all-time lows. Inflation has averaged only 2% for the past ten years, and the US dollar remains one of the of the world’s strongest currencies.
Ultimately, I remain an optimist. Owning equities (stocks in great global companies) means that you participate in the long-term growth of the global economy. Market indexes and equity prices will continue to be volatile, and that volatility may trigger stomach-wrenching concern. As your advisor, my goal is your long-term success. As a committed capitalist, my message continues to be: maintain a balanced perspective, stay calm and disciplined, and reap the rewards that capital markets deliver to participants.