Market Volatility: August 16, 2019

Over the last several weeks, global economic issues have driven a substantial uptick in market volatility. Trade talks between the U.S. and China have remained unproductive, and indicators globally have continued to show economic weakness. In addition, the Hong Kong protests have become increasingly violent, which could force China to intervene, creating even more market uncertainty.

Recessionary fears came to a head earlier this week after Germany’s economy contracted in the second quarter and Chinese industrial production came in lower than markets projected. In response to these reports, the Dow Jones Industrial Average dropped more than 800 points, posting its largest decline this year. U.S. government bond yields continued their decline, with the 30-year treasury dipping under 2% for the first time ever. Additionally, the spread between 10-year and 2-year treasuries dropped below zero, which many analysts view as a strong predictor of a coming recession. 

While market swings tend to feel rattling, it is important to keep the broader economic picture along with your long-term goals in mind. U.S. labor markets are strong, and the Federal Reserve is taking an aggressive stance on rate cuts to maintain the economic expansion; markets recently were pricing in an almost 60% probability of three or more rate cuts before the end of year. Earlier this week, Walmart earnings came in stronger than expected despite these global trade tensions, and U.S. core retail sales beat forecasts.

Despite our instinctual tendency to react emotionally to sudden volatility, keeping these market dislocations in perspective with long-term goals and objectives best ensures an investor’s chances of success. While just about any historical analysis proves the failures of timing the market, investing for the long term in portfolios that match your risk tolerance and that keep your total financial plan in mind allow us to weather these moments of unsteadiness. In fact, subsequent days after large market dips can represent the largest upswings in a given year, and missing those days by suddenly deciding to exit the market can dramatically undercut annual performance. If you have any questions about your portfolio or the market, don’t hesitate to reach out to us to discuss.