The markets have been mostly down over the past week. The S&P 500 is down a little over -4.5% and the tech heavy Nasdaq is down almost -6% since May 1st.
Today was no reprieve with the markets selling off. The Dow and S&P 500 were both down about -2.4% and the Nasdaq was down -3.41%.
The rally that started on 12/26 has barely let up, so this decline is not a total surprise. At the end of last month the markets just got back to the high set on 9/21/2018. The fact that the market recovered so quickly from a (almost) -20% decline (9/21 to 12/24) is an amazing feat. Typically it takes much longer for the markets to recover from a decline like that.
Investors had become very complacent lately as evidenced by the index that tracks market volatility (the VIX). Since the VIX index peaked on 12/24/2018 it had declined 64% through the end of April. When markets have risen so far, so fast - along with such low volatility, it only takes a little bad news to spark a sell-off. In this case, the bad news was the lack of a trade deal with China.
Last week Friday was a deadline that came and went with no deal being struck. The U.S. increased tariffs from 10% to 25% on $200 billion of products imported from China, and China retaliated today with raising tariffs on $60 billion of U.S. goods exported to China. Much of the rally we’ve experienced was predicated upon an assumption that a trade deal was just around the corner, so the fact that deal wasn’t done has more to do with the sell-off than the % of tarries levied.
Just a head’s up....It’s quite possible that the stock market, as a whole, might gap down another 5%-8% from here before stabilizing.
Just remember that we, as investors, must keep a long-term view and try to let these events roll off our backs. It’s why we diversify our portfolios...it’s why we invest a % in bonds (the amount invested in bonds is dependent upon your risk tolerance, comfort level, and when you’ll need to take withdrawals, but you see my point).
Please feel free to reach out to me if you want to talk specifics about your portfolio or if you have any questions I can answer for you.