I’m sure you saw the headlines.
After hitting new highs last month, markets dropped dramatically, erasing months of gains.1
It feels like the sky is falling.
Let’s take a step back and take a look at what’s going on.
What’s behind the market drop?
A couple of major factors fueled the sudden selloff:
1. Weaker-than-expected economic data that sparked recession fears.
July’s soft jobs report triggered a recession indicator that caused U.S. stocks to sell off in fear.2
Though it does not appear that the U.S. is in a recession now, weakening economic data is increasing the risk that a recession will strike.
2. Speculative currency trading by corporate investors.
“Carry trading” is a risky strategy that involves borrowing money in a currency with a low interest rate (such as the Japanese yen) and then reinvesting the money somewhere else where returns are higher.3
This strategy has become popular in recent years because of Japan’s very low interest rates.
Its success depends on cheap borrowing currencies and low market volatility.
However, that strategy is no longer paying off.
Japan’s central bank recently hiked interest rates, and markets grew more volatile, hitting traders with a double whammy.
The “unwinding” of these speculative investments triggered a global selloff as traders sold positions to cover losses.
Hard investing truth: there’s always a reason to sell.
Markets are always waiting for the next opportunity to melt down.
That’s part and parcel of being an investor these days.
There will always be something happening that can cause anxiety, fear, and the knee-jerk desire to sell.
But panic selling in response to a market stumble is the wrong move.
Selling and sitting on the sidelines typically means missing out on the best market days as investors sell the dip and turn positive again.
Though markets bounced back quickly, it's possible the volatility and selling pressure will continue.
It's very common for markets to experience a selloff after reaching historic highs.
We’re watching closely and monitoring the data, including possible Federal Reserve decisions that could move markets.
Please call me directly at (817) 888-8861 for more questions you may have.
One of the most important parts of my job is being a reassuring voice and educated opinion when the market jitters hit.
Your Trusted Advisor,
Robby
Sources
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Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or advisor for specific information pertaining to your situation.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.
Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
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