01/20/2016 – While nobody likes market downturns, they are inevitable. Trying to understand and apply rationale to short term market movements is fraught with difficulties due to the overwhelming amount of data that can influence them. With that said, applying some rules to our decision making process helps us know what actions to take in dramatic movements like we have had the beginning of this year. Here is what we know:
First, there was no “news” that caused the downturn. Typically, some news occurs that changes the way people think about the current economic climate. This can come from a large company that influences a market segment, such as Amazon or Google. On the economic side, it can come from a Central Bank that has changed its policy in some way.
Second, the sharpness of the decline is divorced from economic reality. While there are scant news of economies that are booming, the global economy is plodding along in slow growth mode. None of the most recent economic data suggest that we have hit a wall.
Third, oil prices, oil prices, oil prices. We are now seeing oil prices that we have not seen since 2003. While this has a negative impact on the oil industry as a whole, the overall decline in prices is a net positive for the US economy.
Lastly, going into this year, there was a doubt as to the valuation of the US stock market. Is it cheap or expensive? These last two weeks of trading have answered that question, the market is now in the cheap category!
For all those coming to our annual meeting tomorrow evening, I’m sure we will have a lively discussion on what the recent market movements mean going forward. We will also add some color as to what seems to be the causes. I look forward to seeing you tomorrow.
For those that cannot make it tomorrow, check back in a week on our website as we will have some update information posted there.
Thank you for all your support.
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