This week was a rocky one as the S&P posted sharp declines beginning on Wednesday and tech regulation came to the forefront with news that Google+ users’ data was hacked. Get the details by reading on…
Stocks Endure Sharp Selling — U.S. and global equity markets fell back to earth this week, with the S&P 500 and foreign markets (EAFE, ACWX) both posting sharp declines. The S&P 500’s -3.1% decline on Wednesday rivaled the -4.1% drop experienced back on February 3. The selling pressure was fairly broad-based but the NASDAQ suffered most on the big down day, shedding -4.08% and dipping into correction territory. Rapid and sudden declines have typically prompted investors to cite and search for causes, and this go-round was no different. The first line in a Wall St. Journal article published on Thursday stated that “U.S. stocks tumbled [Thursday] in another volatile trading session, as investors refocused on signs of slowing global growth, rising bond yields and increasing trade tensions (emphasis ours).” In our view, this assessment offered a clear clue that this volatile market action is likely a correction and routine market gyrations, not a bear market or something bigger. Anytime we see sharp and scary drops in the market accompanied by old, recycled fears being cited as the possible catalysts, we tend to recognize them as the hallmarks of a classic market correction. Just last week, there was broad consensus and solid data indicating fundamental economic strength in the U.S. Did these fundamentals somehow deteriorate in the course of one week? We tend to think not, and we would encourage equity investors with long-term growth goals to remain patient and stay the course.1
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Tech Regulation Seeming More Likely – In a rare showing of bipartisanship, top Republican and Democratic lawmakers made the case this week for increased regulation on the nation’s biggest technology companies. The new revelations this week that Google+ experienced a glitch exposing user data for years (story below) set off a chorus of “enough is enough” in the halls of Congress. Commerce Committee Chairman John Thune (R., S.D.) stated at a hearing that the era of allowing technology companies to self-regulate needed to come to an end, and calls for legislation increasing data-privacy protections for consumers were made. If anything, and more so than rising interest rates, concern over global growth, and trade worries, it’s this type of proposed regulation that could have weighed so heavily on technology stocks this week.3
Google+ Shuts Down, Nobody Notices – Earlier this spring, Google became aware that hundreds of thousands of Google+ users had their private data exposed, but not in a one-off event. The private data had been exposed for years. Drawing the ire of lawmakers this week, however, was the fact that Google kept quiet once it had become aware of the Google+ glitch. In response to the issue, Google shut down the Google+ functionality completely, ending its failed foray into the social media realm.4
China – U.S. Tensions on the Rise – with all eyes and ears focused on stock market volatility this week, few noticed that diplomatic relations between the United States and China continue to chill. On Monday of last week, U.S. Secretary of State Mike Pompeo and Chinese Foreign Minister Wang Yi clashed over trade and set about blaming each other for a recent warship confrontation between the two nations in the South China Sea. The United States also accused China of attempting to interfere in the U.S. midterm elections and called out Chinese exporters for attempts to dodge tariffs. Meanwhile, China published a whitepaper labeling the “Protectionist U.S.” as trying to disrupt global trade and economic growth. In our view, the relationship between the U.S. and China – and what ultimately happens on trade – is the biggest risk to be eyeing today.5
This week brought to the forefront a challenge many equity investors face – how to react to volatility. In our view, it is important to remember that volatility is a normal part of the ebb and flow of the markets. We believe the key is not to look for ways to eliminate it, but developing a mental approach to dealing with it.
Our Volatility guide, “Helping You Manage Market Volatility,”6 will provide you with insights and tips to do just that. Get answers to questions like:
If you and $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
Disclosure