Calm in the Eye of the Storm

Calm in the eye of the storm

Markets have become unsettled amid uncertainty surrounding Tariffs and Inflation fears.  The Federal Reserve has paused its path of lowering interest rates until new data gives them cause to change. The first quarter is no surprise that the S & P 500 declined 4.6% with all the changes that are taking place in Washington. As of this writing on April 10th, tariffs have been raised to their highest level since the 1930’s, leading to sweeping economic and market effects.  Since March 31st after the announcement of tariffs, the S&P 500 had declined 13.73%. Since the delay of 90 days on tariffs taking effect the S&P 500 rebounded to be currently down 7.74%. Although it is difficult to determine whether both sides will come to the table to negotiate tariffs, it is clear on the front-end investors are reacting to the unknown. This volatility may persist until there is some agreement on trade.  Investors never like uncertainty.  

Many market strategists and economists are commenting on what could happen or may happen based on how long this newly formed trade war lasts.  We are beginning to see investors shifting to international markets away from the U.S. while this current environment sorts itself out.  

What to do?

Difficult times where volatility heightens is unnerving to say the least.  However, as investors we need to understand the overall effects of uncertain times.  Investors from time to time get wrapped up in all the social media articles, the news media and discussions among family and friends.   No matter what the source, there is no shortage of opinion or speculation.  We take all this information and discussions quite seriously.  However, we know that we have gone in prepared for many of the unknowns before they occur.    

How?

If you have read any of our commentaries in the past, you know how much we emphasize the importance of diversification.  Asset allocation matters all the time, not just sometimes.  When markets are rising a well-balanced portfolio will never keep pace with whatever the hottest theme is, but when markets are falling the well-balanced portfolio throws us a safety net to not fall as hard. No one ever knows when the tipping point is for when markets turn negative, nor how far they fall, it is simply part of the overall investment experience to be successful.  Investors need to have check points along the way to take advantage of market volatility.  We believe investors that are accumulating for the future should keep buying into the downturn and for those approaching retirement or in retirement make sure you remain balanced in your allocation at an acceptable level of risk.  We all know that market cycles change for various reasons, so we need to know when to pivot from time to time in our allocation.  During the past two years we have been selling profits to extend the safety net for some investors, providing for required minimum distributions or simply funding cash flow needs without disrupting the overall allocation.  Warren Buffet recently took profits from a few of his highly appreciated positions in his portfolio, he did it to have cash on hand for the next opportunity whenever it presents itself.  

In summary, we know that we have been through volatile markets before and everyone is different.  Investors often don’t know if things are going to get worse until they do.   Unfortunately, no one can tell you when this will happen, but diversification can lower the downside effects.  Whether a decline is modest and short-lived or sometimes long and painful, investors should stay with their long-term plans and continue investing. On the bright side, downturns present opportunities.  Historically, it has never been all that long before the market resumes its upward trajectory.  

We will get to the other side just as we have before.   Thank you for your continued confidence in our strategies that have been successful outcomes for you.  We are here to answer your concerns or questions and always look forward to our next meeting.  

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