At the end of last week and almost on cue as the calendar turned from July to August the stock market began to sell off. As of July 31st, the S&P 500 was up 15.9% not including dividends and depending on where we close today the S&P 500 will still be in positive territory for the year by almost double digits. Over the last 100 years the stock market indexes have averaged about 7% per year and every year we get some kind of correction as demonstrated by the attached slide. The three months of August, September and October tend to have the most volatility due to a range of factors that include elections, economic cycles, interest rate cycles and institutional tax filing and reporting dates. Therefore, with that in mind what is an investor to do?
The answer is to stay with your financial plan that has been created as our planning has anticipated these kinds of corrections. The headlines that cause corrections (wars, bankruptcies, Fed policy, international trade etc.) always change but the numbers are usually similar in nature. We get a correction where people who are scared, don’t have a plan, or have borrowed money to buy stocks begin to sell at ever increasing rates which causes fear and ugly news headlines. This is exactly why we ask clients to keep enough cash in their accounts at Baird or other trusted financial institutions to weather this kind of economic uncertainty. Remember that your portfolio is diversified with companies from various industries who have real revenue and real earnings. We do not engage in speculation or leverage to enhance your returns thus enabling you to weather the storms when they arrive. The market will likely stay choppy until we get to the other side of a contentious Presidential election. Giving long-term investors, like us, the opportunity to buy great companies when others are forced to sell. The old saying on wall street is that sometimes the wolves come out and sheer the sheep. Let us be the ones who benefit from those who took too much risk in their portfolios and are forced to sell at low prices. As always, we will continue to keep you updated on current developments.
Our entire team is ready and able to meet with you by phone, in-person, or virtually at any time that is convenient for you. Please let us know how we can help, and we look forward to connecting with you.