UH OH!! Here comes Volatility (Again)

On Monday the Dow plunged 1,175 points (4.6%) it’s largest single day point drop in history.  After a comeback on Tuesday, and a relatively flat Wednesday today it dropped another 1033 points.

We are now down more than 10% from our recent high, which is considered a correction.[1] 

We know this is scary.  Especially for those of you who are retired or getting close to retirement, i.e. ALL OF MY CLIENTS! But remember, a correction is not the same as a bear market.

So what exactly is going on and what is Newport Wealth Advisors, my firm, doing about it?

WHAT’S GOING ON?

Well, the first thing to rememver is we are coming off one of the least volitile stock market years in history.  In fact, according to Marketwatch, 2017 was the first year EVER the Dow was up all 12 months in a single calendar year.  So that’s amazing.

Further, we saw incredible gains in the US Equity markets with the Dow finishin up 25.1%, the S&P up 19.4%, and NASDAQ up 28.2%.[2]

If you’re looking for some economic rationale there’s also some of that.

INTEREST RATES

 

Interest rates are rising. We’ve seen the 10 year treasury yield jump to about 2.875%.  And rise very quickly.  When interest rates rise, fear of inflation is sure to follow.  Inflation can be bad for business!

 

ECONOMIC DATA

On Friday the Bureau of Labor Statistics, the agency from which the US Government gets the bulk of its labor economic data, reported an annual wage growth of a whopping 2.9%, which represents a very large jump in wages.[3]

Further, they reported that the unemployment rate in January remained at a 17-year low 4.1%[4].

Wage growth and low unemployment make giant, institutional investors nervous because these two things also are leading indicators we might see inflation.

So to summarize, you have rising interest rates, high wages, low unemployment, and inflationary fear.  All of these things combined make it pretty easy to see why some investors believe large corporations (i.e. the stock market) may not be as valuable as they were last week!

WHAT’S NEWPORT WEALTH ADVISORS DOING ABOUT IT?

Well the answer to that question is – “What we’ve always done.”  We utilize prudent, conservative portfolio measures built to protect our clients’ downside. In fact, we made a few tactical changes on Monday designed to protect our clients’ money and they paid off for our clients today!  At Newport Wealth Advisors our portfolios are specifically designed to withstand a correction. 

All that being said, we’re not panicking.  And neither should you.  Based on the HUGE numbers the market put up last year this is still a pretty small blip.  Economic data is still good, the market is still almost 20% higher today than it was one year ago, and earnings are still strong.

Always know we’re here for you.  If you’re worried or stressed give us a call.  We’re happy to walk you through what we’re doing and our opinions.  Even if you’re not our client or you don’t have an advisor, if you’re worried your portfolio is too aggressive during this time of volatility give us a call!  We’re happy to chat with you as well.

I hope this has been helpful.

Thanks!

[1] https://finance.yahoo.com/news/stocks-rolling-over-again-volatile-162025474.html

[2] https://www.marketwatch.com/story/dow-sp-set-to-power-to-fresh-record-on-2017s-last-trading-day-2017-12-29

[3] https://www.theatlantic.com/business/archive/2018/02/dow-drop-stock-market-february/552380/

[4] https://finance.yahoo.com/news/live-january-jobs-report-131330948.html

About The Author
Mike DePaul
Co-Founder
After beginning his career working for the largest financial planning organization in the United States, Mike became a top producer as well as a top trainer of financial advisors. He soon realized that the big firms don’t always have their clients’ best interest in mind and simply couldn’t continue down that path. He helped found Newport Wealth Advisors with the belief that there are smarter, more efficient ways to reach your financial goals that don’t include peddling one company's products.
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