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Market volatility is nothing new

Posted on Monday, January 7, 2019 by Gary Hunt

By Phil Lovegrove, CFP

Over the past few weeks, we’ve seen a lot of volatility in the stock market, including a 1,000-plus point drop for the Dow Jones Industrial Average. While such market drops are dramatic – and disconcerting – it’s important to note that nothing unprecedented is going on.

So, what is going on?

  • Interest rates are rising: This scenario hits the earnings of tech stocks particularly hard. And these are the very companies that have been driving stock market gains.
  • Return of volatility: Since the recession of 2008-2009, the stock market has experienced unusually low market volatility. The increased volatility in the last couple quarters is much more normal of longer-term market trends.
  • Investors are cashing in: Anticipating a high-rate environment, many investors are selling their holdings and taking their gains.
  • Trade/tariff issues: The U.S.’s increasingly protectionist trade stance has led to tariffs on Chinese goods. Uncertainty is causing some investors to sell on emotion.

Is the news all bad? Not at all.

  • U.S. economy fundamentals are strong.
  • Valuations are sound for investors with a long-term time horizon.
  • While the volatility can be difficult at times to stomach, it has also historically created great investing opportunities.
  • Unemployment is among the lowest levels seen in recent memory.
  • Inflation is under control.
  • While global growth is expected to slow, it is not stagnant.

For now, you should remember that investing is a long-term prospect and feel free to contact me if you have a question.

Phil Lovegrove, CFP, is a partner and financial adviser at Vorisek Financial Corporation.

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