Leon LaBrecque, JD, CPA, CFP®, CFA
In the last few days, the stock market has been very volatile. The decline on February 5, 2018 was quite substantial in dollar terms, and logically, a lot of folks are concerned. We’ve been doing this for a long time, so we thought we’d offer a brief perspective:
- Remember what we said in our 2018 Outlook: we are coming off the least volatile market in history, with the most all-time highs since 1910 on the Dow. Something was overdue.
- We are frequently asked “what if the market corrects?” The correct question is “what do we do when the market corrects?” Markets are human inventions, and as such have excesses of ups and downs.
- What’s the reason for this move? The market went up, a lot and quite fast. We came off the fastest 1,000 point rise in the Dow in history (and thanks to February 5, 2018, the fastest 1,000 point drop in history).
- Is this going to get ugly? We don’t know, but the underlying economy is good, and appears to be getting better. Tax cuts help, most Americans saw bigger checks this week, most corporations will see lower taxes for 2018, and small businesses have better tax scenarios. Our take is that we are in growth mode. In fact, maybe what precipitated this was our view, obviously shared by others, that this might be too good.
- Last point (although there are many more, but I promised to keep it brief): Money flowed out of the stock market and on a larger scale, out of the bond markets. This didn’t appear to be a ‘swap stocks for bonds’, but a ‘swap everything for cash’. That’s OK, but when money sits in cash, inevitably it has to go somewhere. And then the market cycle continues.
Did anyone see Super Bowl? Remember the ads, like the Alexa ad, (which I thought was really funny)? Does anyone remember a 1987 Super Bowl ad? How about the 1987 crash? On October 19, 1987, the market dropped about 22.05% in one day. If that happened now, that would be about a 6,000 point drop in one day. Look at this in perspective. Incidentally, in 1987, my wife Anne was my broker. That’s a good reminder to look at the long run, and not a few days. (By the way, in 1987, despite the big drop, the market was actually up for the year.)