The title above does not refer to me taking my fifth daughter, Becca, off to her freshman year of college two weeks ago. It refers to the stock market correction that may have started at approximately the same time. However, upon reflection, the two events have more in common than you might first suspect. Each market downturn is unique, just as my children are. It would be nice if daughters #4, #5 and #6 were carbon copies of #1, #2 and #3. That would have saved me a lot of parenting anguish, but that was not the case. I had to adapt to each unique child. Market corrections are the same in the sense they all begin for different reasons. This time, the major culprit seems to be a combination of a global slowdown in growth and a touch of fear that the Fed is about to raise rates and end the seven-year era of easy money. Another common trait is that both involve some tears. Dropping off yet another child at college is the sign that one more is about to leave the nest (you hope) and even though this was the fifth time around, tears were still involved. Market corrections can involve some tears too, especially after more than six years of some really nice gains. No one likes to see their investment values fall, even if it might be only temporary. Although it does not feel like it while it is happening, market corrections typically happen over a relatively short amount of time. Likewise, before I even realize it, I will be driving the SUV back to Ohio to pick up Becca, along with all of her belongings and acquired scholarly wisdom, at the end of the school year. Chances are very good that by then, the freshman tears and the market correction will seem like a long time ago.
I have had the good fortune to be in this business since 1986. I have survived more stock market corrections than I have had daughters. I do not want to diminish what is currently happening, but my feeling, based on much experience, is that “this too shall pass.” Until then, for the month of August, the Dow lost 6.6%; its largest one-month percentage decline since May 2010. As I write this brief update (9/1) the Dow is dropping about another 2% to start the new month. A market correction is typically defined as any market pullback that is over 10%. I think we have touched that once last week and have since recovered to less than 10%. However, we may go south of that point again. Stocks have fallen in price globally; with Europe and, particularly, emerging markets giving back much of their gains from earlier in the year. US growth, although slow, is stronger than most in the world. Therefore, smaller US stocks that do not conduct as much business globally have declined the least in this correction; down about 3%. The good news in this market correction has been that it is primarily about stocks. Unlike 2008-2009, when most every asset class fell in price, bonds have continued to hold their value and perform normally. For all clients who have balanced portfolios of stocks and bonds (most of you), your accounts are not down as much as is suggested by the headlines regarding the falling stock prices. It may be hard to see past the current tears of this correction, but for long-term investors, this recent volatility will eventually end. That is, at least until I have to send the sixth and final daughter to college four years from now.
Please call your consultant for any questions or concerns as we prepare for fall.
Sincerely,
Mike Kauffelt
Chief Investment Officer
Bill Few Associates, Inc.
All data from The Wall Street Journal
