FIRST TRUST’S Brian Wesbury has some good advice for people who have been wondering about the market volatility so far this year.
After strong gains in 2013, equities have struggled this year. Thursday and Friday felt a little panicky. US stocks were down close to 3%, gold was up, and the 10-year Treasury yield fell below 2.75% for the first time since November. Investors are on edge, short-sellers are a little giddy and we even heard a TV host mention the infamous “Black Swan” again.
It’s hard to tell exactly what triggered the “Risk Off” trade, but last Thursday, even though 15 out of 20 S&P 500 companies beat earnings estimates, weakness in the Chinese purchasing managers’ index set off some selling. So, is this a moment to “run for the hills” or to “pull on your parka and wait it out?” We opt for the latter. Right now, there’s a mad rush for a narrative to explain the recent market stumbles. One is that Chinese weakness hurts commodity exporters. Another is Federal Reserve “tapering” is shrinking global liquidity, hurting emerging markets.
Still others point to turmoil in foreign currencies in places like Argentina and Turkey. But we have seen this movie before along with government shut-downs, oil spills and even regional wars. But the fundamental have not changed, housing is on the rise, jobs are up despite people leaving the jobs market, oil and gas production is booming and new technology is boosting productivity, growth and profits. We went to a few stores recently and they were filled with shoppers, parking lots were full and there were long lines to check out. When large, flat screen, TVs are flying off the shelves, the economy isn’t doing badly.
We may see a full-fledged correction yet, but every bull market has these as part of the pattern. The problem with trying to time the markets is that without a working crystal ball the timing is almost always wrong; you have to be right about the time to step out and the time to step back in. It’s at times like this that having an appropriate asset allocation for your risk tolerance and your time horizon shows its true worth. This is what RIAs do best. If nothing has fundamentally changed, our outlook remains cautiously optimistic. We suggest that everyone remain calm.