You shake my nerves
and you rattle my brain
Too much love drives a man insane
You broke my will, oh what a thrill
Goodness gracious great balls of fire!
Recorded by Jerry Lee Lewis in 1957 Written by Otis Blackwell and Jack Hammer
I think we have to acknowledge that most of us were pretty rattled by Friday’s stock market drop. While I’m a Certified Financial Planner™ and not a market strategist, I would like to share my thoughts on the current situation. Hopefully, my readers might find it somewhat helpful.
Why did it happen?
While no one can say with certainty (even the prognosticators on CNBC), most market watchers believe that the slowdown in China’s economy will slow down the rest of the world. Since stock prices move with company profit expectations, the implication is that
… Declining demand in China
… causes their imports to slow down
… thereby causing a slowdown for the import companies
… which necessitates these companies layoff employees
… where the affected workers aren’t able to purchase goods and services
… and so on
Add a similar spiraling scenario for oil (sinking prices, layoffs, demand slowdown, lower growth, etc)
And a Fed increase in interest rates (which might also slowdown demand, etc)
Well, the stock market can “shake and rattle” the world economy into financial Armageddon.
What is my recommendation?
- There are two sides to every coin. Could this provide you the opportunity for tax loss harvesting? Are you able to purchase that stock now that the price is lower?
- Diversification is a good thing. Check your allocation to bonds, domestic stocks, international stocks, emerging markets, real estate, cash, etc. Determine if changes are warranted. If you want assistance, call or email me.
- Know yourself. Use this volatility as an opportunity to gauge your own tolerance toward market dips. There might be products that you wouldn’t have considered before, but a 500 point correction has changed your mind.
Every client in my office has an individualized financial plan and this will necessitate individualized responses to market corrections now and in the future. What you should do now will depend on time frame, risk tolerance, asset allocation, income implications, personality and almost infinite responses.
I’m old enough to remember the old adage, “when GM sneezes the rest of the world catches cold.” I think we could easily substitute “China” for “GM.” It probably wasn’t true then and probably isn’t true now either.
At least that’s what I think…
By Debbie Craig, CFP®, MBA, CRPS® Branch Manager
Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. There is no assurance that any of the trends mentioned will continue in the future. The information provided is for informational purposes only and is not a solicitation to buy or sell. Past performance is not indicative of future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.