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What Do These Big Drops In The Market Mean To You?

What Do These Big Drops In The Market Mean To You?

The last few weeks or so have been a little unsettling for many investors. Bears have come out of hibernation and have sent the broad markets over 10% lower from their recent highs. While no one could have predicted when it would show up or that it would hit with the vengeance that it has, we’ve been expecting increased volatility for several months. Rising interest rates and concern over trade and tariffs appear to be at the root of recent week’s performance and the catalyst for more volatility.

It’s important to remember that, up until recently, market performance has been driven higher by corporate earnings and not speculation. The S&P 500 is now trading at less than 22 times 2018 earnings estimates, down from 24.5 times a year ago *. Corporate balance sheets are stronger than they have been in decades, and we believe the recent tax cut is an unambiguous positive.

The bottom line is that the fundamentals of the markets and the economy continue to show promise. Interest rates don’t typically climb without a stronger economy. Inflation doesn’t usually appear without wage growth. In our opinion, recent selling has been a kneejerk reaction to a rising Ten Year Treasury yield and trade talk; it has been triggered by emotion and not the result of a fundamental breakdown. Another catalyst for volatility has likely been the upcoming mid-term elections. History would indicate that prior to the mid-terms the financial markets experience higher levels of volatility.

For some investors this volatility is simply “noise” and there is no need to make any changes to your investment allocations. For others this volatility may make you uneasy to the point where it would make sense to re-evaluate your current investment allocation. Your risk tolerance may be different than you thought during the bull market.

JOE RANDAZZO, JD CFP®

S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. Treasury yield is the return on investment, expressed as a percentage, on the U.S. government’s debt obligations. Looked at another way, the Treasury yield is the interest rate that the U.S. government pays to borrow money for different lengths of time. Past performance is no guarantee of future results. Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index.

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Information October 26, 2018 Buckeye 457
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1 A variable annuity is an insurance contract which offers three basic features not commonly found in mutual funds: (1) annuity payout options that can provide guaranteed income for life; (2) a death benefit; and (3) tax-deferred treatment of earnings. When applicable, the tax deferred accrual feature is already provided by the tax-qualified retirement plan (e.g. 403(b), IRA, etc.). The U.S. Securities and Exchange Commission (Investor Tips: Variable Annuities) has suggested that for most investors it would be advantageous to make the maximum allowable contribution to a tax-qualified retirement plan before investing in a variable annuity. The separate account of a variable annuity is not a mutual fund. While separate accounts may have a name similar to a mutual fund, it is not the same pool of funds and will experience different performance than the mutual fund of the same or similar name. In addition, the financial ratings of the issuing insurance company do not apply to any non-guaranteed separate accounts. The value of the separate accounts that are not guaranteed will fluctuate in response to market changes and other factors. Variable annuities are designed to be long-term investments and early withdrawals may be subject to tax penalties and charges. Please obtain a prospectus for complete information including charges and expenses. Read it carefully before you invest or send money. None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.

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