With back-to-back 2%+ losses in the S&P 500 and a 5.5% drop since last Friday, it's been a rough week for stocks. And while we're just 7.2% from the all-time highs, because of how steadily the market has advanced since the spring, it sure feels like the world might be ending. So, is it?
First, let's reflect on the last few months of newsletters. Since this summer, I've pointed to weakening market internals, negative divergences, leading stocks like Facebook and Netflix breaking down, and other troublesome signs. And as the old saying goes, "Everything was good, until it wasn't." Indeed, four months of gains vaporized in two days. So, why did the market drop
? Is it rising interest rates? The trade war with China? The prospect of a Democrat-controlled House of Representatives? The "flipping" of Paul Manafort and Michael Cohen which could lead to presidential troubles? In truth, I don't know. I don't think anyone really does. All of these factors were around before this week and they didn't matter then, so why now? Sometimes, the explanation is obvious and sometimes it's not. This time, it's not.
Regardless, clients of Flatirons Wealth Management (FWM) raised some cash this summer because of what I was seeing then and so had some "dry powder" now to deploy as the market has fallen. That's good news. As to where we go from here, I am, admittedly, uncertain. Perhaps this correction is just beginning or perhaps it is just about over. I do feel confident we are NOT on some type of 2008-type precipice. We'll stay mostly invested and continue to look for clues and opportunities. As I've mentioned before, one of the biggest advantages small investors have is the ability to be nimble. That means we can enter and exit trades quickly, if need be, as new information arises. Unlike many large institutions, we also don't have to be 100% "in" or 100% "out." We can, and will, play in increments until the solution begins to get clearer. In the meantime, continue to stay focused on the strong economy, solid credit markets, and still relatively low interest rates. Make your regular retirement plan contributions and know, this too shall pass.