In my email of 8/24/15 to my clients, I indicated that the market’s volatility could persist for the short term. Two months later the market appears to have “formed a bottom”, and we may be on our way to reaching the trend line of long-term market growth.
What Does This Mean to You?
I feel that there is no need for portfolio adjustments at this time. The market has behaved in a classic pause and correction phase, in the middle of a relatively healthy bull market. It is now at the point where any money that you have sitting on the sidelines, and waiting to be invested into the market, could be invested in a “dollar cost averaging” manner.
Causes of Current Volatility
The current volatility is partially caused by the financial industry’s uncertainty due to the recent behavior of the Federal Reserve. Will they, or won’t they raise the rates? Analysts whom I trust feel that they may raise rates 1/4 % before the end of the year. This is a small increase, and will take a while to ripple throughout the economy. An initial increase in rates has not, in the past, caused problems for the market. It is the uncertainty surrounding the increase.
Our national economy seems to be in pretty good shape. Here are some factors to consider based on recent economic reports:
- The Small Business Optimism Index continues upward
- Retail sales continue upward
- Unemployment claims are down. Job openings are up, in fact the job market is beginning to tighten
- Consumer prices are no higher than they were one year ago
- Household balance sheets are fully recovered
- The Index of Leading Economic Indicators suggest that expansion will continue
- The rate of consumer income is very close to where it was before the “sub-prime” crisis
- The Purchasing Managers Index, a measure of spending on things that grow the economy, is at historic highs
- Vehicle sales are back to pre-recession levels
I will continue to monitor the situation, and let you know if I see anything that requires changes to your portfolio, or your plan. Stay tuned.