Many of you are probably wondering what caused all of the volatility in the stock market this week, and how it factors into our outlook for the remainder of the year?
Before we get into that, we want to remind clients that we had talked (and written in our newsletter) about getting more defensive in our accounts towards the end of last year. We spent the majority of December rebalancing portfolios with an eye toward reducing equity (stock) exposure and adding to the safety (fixed income) side of the portfolio. While no one likes to experience the kind of selloff we had this week, the moves we made prior to the end of the year helped accounts weather the selloff a little better.
Obviously we did not foresee the exogenous events that exacerbated the selling in the market this week – namely Iran considering war with Saudi Arabia, N. Korea claiming an H-bomb, China having to halt trading in their markets, and a further devaluation of the Chinese currency. These events certainly had a negative effect on investor sentiment. The most recent job’s report showed strength in the U.S. economy, which makes us feel a little better that there remains underlying fundamental strength that should return to the focus at some point.
Our outlook and game plan for the near-future likely involves looking for opportunities to get more defensive in our portfolios. We know from experience that even if there is more downside risk in this market, corrections rarely unfold in a straight line, and there will be better opportunities to further rebalance vs. selling at today’s levels. So be patient, and focus on the big picture. Investors often get so caught up in the short-term that they forget about the opportunities that unfold which ultimately benefit them longer-term.
Hope that helps a bit. Feel free to call us if you would like to discuss anything further.
Jordan L. Kahn, CFA
Chief Investment Officer