As we end the second business week of the year, let us put into context the market activity we have experienced so far in 2016. The news from the mainstream media (spoken or in print) seems to paint a continuing picture of doom and gloom on a 24 hour basis. The facts and complex events pushing the markets are not new and not nearly as sinister as what is being reported.
We are still experiencing tumultuous volatility in the world’s financial markets including our own country. As our economy enters its seventh year of expansion, it has become vulnerable to softening growth in China, as well as declining prices in energy (oil and gas) and other commodities worldwide. These are the main factors driving the dramatic shift in investor sentiment and market volatility.
As we’ve talked about for the better part of two years, it is not realistic to think our financial markets can continue indefinitely without some sort of market pull back or correction. Currently the U.S. market indexes, broadly speaking, are in the midst of a moderate price correction – in the 10% range. History tells us since 1900 this type of correction occurs about once every year. Being aware of these facts, we have been very proactive over the last 18 months reducing portfolio risk by lessening our allocation in equities and focusing more on bonds and cash. Being proactive allows us the benefit of not necessarily having to be reactive now. Understanding world events and what is making markets move up or down helps us to establish and fine tune a well constructed investment plan, which is the key to long-term success. We will continue to keep you posted on the financial/stock market events as they unfold.