Pondering the imponderable stock market

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by David Novak

The fourth quarter, and particularly the month of December, were not pretty
for the stock market. Pick your favorite statistic:
December was the worst month for the market in 10 years. The market had its
worst Christmas Eve performance ever as it hit a new low even in an abbreviated trading session. Or perhaps the most telling, that December 2018 was the worst market performance for the final month of the year since December 1931 – smack in the middle of the Great Depression.

Yes, we just made it through the worst December in 87 years.
The media came up with several “reasons” for this swift decline, some better than others:

Fears of growth slowing in the U.S. and around the globe. The Federal Reserve
continuing to raise interest rates. Ongoing trade disputes, particularly between
the U.S. and China. The fact that computerized trading accounts for the majority of daily trading volume these days can exaggerate the declines because so many computer trading algorithms are programmed to react the same way to the same news.

It is important to remember that although market corrections like we have just had can be difficult and unsettling for investors, they are a normal part of investing. In fact, they may be more common than you think. According to Ned Davis Research, this is how often stock market corrections occurred since 1928:
-5% correction Approx. every 2 months
-10% correction Approx. every 8 months
-20% correction Approx. every 30 months
Will the market low on Christmas Eve turn out to be the low for this recent correction? Nobody knows, and I would stay far away from anybody who tells you with certainty that they do know. We are not afraid to say we don’t know where the market will go in the next 30, 60, or 90 days, and the reason we don’t know is that we can’t know. These short-term moves are unknowable.

What should you do during a time like this? While each client’s situation is unique, and it is not sensible to give blanket advice to everybody, it is a good time to revisit your time horizon and risk tolerance. A Certified Financial Planner can help make sure your portfolio is in line with these important factors— your time horizon, risk tolerance, and unique investment goals—and built to withstand these inevitable market corrections.

David Novak, CFP® is a Certified Financial Planner™ at
Novak & Powell Financial Services in Pinellas County.
Please note: he is not an attorney and this article
should not be construed as one offering legal advice.
For information about investment decisions and
financial planning, contact him at (727) 451-3440.
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