The U.S. stock market suffered through its second correction of the year, and if you’re the kind of person who likes to worry, then October gave you plenty of cause. When the markets are dropping, the financial media needs to find a narrative. You hear all sorts of theories: corporate earnings have nowhere to go but down, tariffs are slowing down economic activity, interest rates are rising. All of that is true, but none of it has anything to do with why the markets are falling. The only correct headline, and one you will never read, is that stocks are falling because some people are losing faith in their investments and selling out to bargain hunters. Sometimes this activity feeds on itself; when people see the market falling, they, too, begin to panic.
Volatility is not always scary, and it doesn’t always portend trouble. The Cboe Volatility Index(VIX Index), commonly known as Wall Street’s “Fear Gauge,” spiked above 25 on October 24th. Before February, the VIX had not been at that level since mid-2016; for context, its trailing five-year average is below 15. However, let’s put the times into perspective. There is historical evidence of volatility before other mid-term elections. Worry about the downturn if you want, but know that worry is the precursor to fear. And if you see somebody predicting where the markets are going to go from here, have some fun and listen if they’re wearing a wizard’s hat and gazing into a crystal ball. If not, it’s probably best to turn off your attention or TV.
Volatility is always a test of investors’ mettle. Turning to fundamentals can help calm nerves when conditions appear troubling. At this point, fundamentals do not suggest the bull run will end any time soon. This business and stock cycle will ultimately end, as all others do with 1) a significant policy mistake in the U.S. or 2) a significant deterioration in economic activity in one of the major economic blocs of the world. Market corrections can be painful, but investors should view the downturn favorably. This is a time to check with your LongView Advisor and review your asset allocation, your risk tolerance, and your overall goals and objectives for your financial future.
Our advisors are always ready to explain market trends and guide you safely through market volatility. Contact us for a financial planning and investment review, and call on us at any time with questions or concerns.