Between phone calls with clients on another day in the financial trenches at Raymond James & Associates, I brainstormed for a good topic to pontificate upon to the readers of this fine publication, and I hope you’ll agree I found it.
Undoubtedly, anyone who has turned on CNBC or picked up The Wall Street Journal in the last month has noticed that volatility has re-entered the market. On January 29th of this year, the Dow Jones Industrial Average reached an all-time high of 26,584.28. From January 30th to February 9th, the Dow shed 2,591 points, or 9.7 percent. The period preceding this market correction was one of unparalleled calm. Since November 2016, when President Trump was elected, the markets had gone in one direction: Up. For well over a year, investors were lulled to sleep by a feeling of safety and unmitigated enthusiasm.
Regardless of what triggered the correction — tax cuts, interest rate hikes from the Federal Reserve, or other factors — it’s clear that volatility has reared its ugly head back into the market. In the midst of the correction, I remember walking over to the coffee shop in the mall next door to my office, where one of the baristas who serves me every day (and who knows I’m in the business) asked me point blank, “Are you okay? I heard it was the worst day ever in the stock market.”
In response, I smiled, nodded, collected my latte and settled comfortably into a window seat with the spy novel I was reading, because I knew that everything was just fine in our financial markets. The Trump Administration’s tax cut has boosted earnings. Unemployment is at a record low. Worker productivity is up.
I could go on ad infinitum. The media does an excellent job of creating fear out of uncertainty, and this event was no different. Yes, the 1,100-point drop was the worst single-day loss in the history of the Dow — but as a percentage of the index, it didn’t come close to touching Black Monday in 1987, an event of which I’m sure many readers have vivid memories.
My point is this: I regularly tell my clients to disregard the majority of media reporting about the markets, as much of it is based on fear and hype. It is my belief that prudent investors follow two fundamental principles to achieve success over the long term: time in the market and diversification.
With this in mind, I was surprised at how emotional some investors — none of whom are my clients — reacted to the market correction. In the same coffee shop, I talked to one man who told me he was ready to dump all of his Amazon stock and take a loss. I reminded him of the principles I mentioned above and told him to remain calm, rather than letting fear disrupt his investment strategy.
As we move into a new month, and the market reacts to the latest news (Trump’s proposed tariffs on steel and aluminum), the market has again entered choppy waters. My advice remains, “Fear not.” Remain steadfast in your approach to the market. Divorce emotion, use logic, and your portfolio is designed to prevail through the present turbulence, and through any temporary market cycle you may encounter in the future.
Patrick S. Mullins
Patrick Mullins is a Financial Advisor with Raymond James & Associates, Inc., Member New York Stock Exchange/SIPC located at 2900 Highway 280, Suite 100, Birmingham, AL 35223. He can be contacted at 205.879.0016 or Patrick.Mullins@RaymondJames.com. Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Please keep in mind that diversification does not ensure a profit or protect against a loss. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. It is not possible to invest directly in an index.
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