Hello ConCappers,
During times like these, you will probably see headlines in the financial news reading, “Dow Plunges 1,500 Points In 2 Days – Market Crash Imminent!” It is true that the Dow has fallen drastically over the last week, but the intention of the news is to sensationalize and put investors into panic-mode and this is exactly what we want to avoid.
Warren Buffet has famously said that the time to buy is when others become fearful, so if anything, as the market drops, as it should over the next few weeks, this only means more buying opportunities for us investors. Our question is not “Where is the market going to be in the next week, month, or year?”; Our question is “Where is the market going to be in 10 years, 20 years, 30 years?” And we make our investment decisions according to that timeframe.
With that in mind, let’s take a moment to focus on what is happening currently in the market. In our last Market Update, we had mentioned that the Federal Reserve decision in December would be key. It seems, at this point, very likely that due to the recent market declines and President Trumps comments directed towards Fed Chairman Powell, there should not be a rate hike in December.
In addition, we had discussed the possibility of a trade agreement with China and subsequently, the market rallied earlier this week due to the agreement on a temporary halt of the US-China trade war.
So why then, in the face of all this good news, is the market continuing to sell-off?
If you have been following what is happening in Britain, Prime Minister Theresa May is most likely going to suffer a humiliating defeat on December 11th of her motion to carry the tentative Brexit agreement with the European Union. The EU has already mentioned this is a “take it or leave it” agreement and has indicated that should the British people reject this agreement, the results will be calamitous. It is almost a foregone conclusion that Theresa May will be out of a job should this occur. As a result of this uncertainty, investors, particularly in Europe, have been flocking to U.S. Treasury securities as a safe haven as evidenced by Treasury yields of late. And as the market fears the unknown, we have here one of the primary reasons of the sell-off.
In other respects, there are indications that the U.S. economy looks healthy overall. Corporate earnings will ultimately determine where the market is headed from here, but if the earnings for the 4th quarter end up being lackluster, then we may be looking at a recession beginning sometime in the next year.
As always, we will keep you posted with further developments as we see them, but in the meantime, please don’t let the market volatility affect you during the holiday season. Like all storms, this one too will pass, so it is up to us to be patient while we ride it out.
With that said, we want to wish you and your families a very happy and joyous holiday season and look forward to the tidings of the new year!
Thanks,
VJ Arjan, CFP®, ChFC®
CEO
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