{"id":8167,"date":"2019-08-19T20:49:06","date_gmt":"2019-08-19T20:49:06","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8167"},"modified":"2022-02-26T13:07:13","modified_gmt":"2022-02-26T13:07:13","slug":"what-does-this-weeks-market-plunge-mean","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/what-does-this-weeks-market-plunge-mean\/","title":{"rendered":"What does this week\u2019s market plunge mean?"},"content":{"rendered":"\n<p>The equity market continues its volatile streak, which as I wrote last week, I expected to be the<a> <\/a>case. Volatility and market corrections tend to come in spurts (often scary and sudden ones), and a few days and weeks can start to feel like a lifetime, in my opinion. <\/p>\n\n\n\n<p>I know navigating the\nups and downs in the short term can be difficult and present some emotional\nchallenges, so I\u2019d encourage readers to try and stay patient and focused on your\nlonger-term objectives. I believe the U.S. and global economy will continue to\nexpand in 2019 despite the headwinds, and I see the market fully recovering in\ntime as well. <\/p>\n\n\n\n<p>This\nweek, global equity markets sold off sharply again when the yield on the 2-year\nU.S. Treasury ticked higher than the yield on the 10-year U.S. Treasury,\ncreating a yield curve inversion that many see as a recession signal. The yield\non the 30-year U.S. Treasury also fell to a record low, though it remains\nhigher than yields on the shorter end of curve (meaning, ultimately, that the\nyield curve is actually more \u2018u-shaped\u2019 than inverted). <\/p>\n\n\n\n<p>_____________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_18&amp;content=stock_market_outlook_report\">How to Prepare Your Portfolio for a Potential Recession?<\/a><\/strong><\/p>\n\n\n\n<p>Instead of getting caught up in the fearful narrative that\nsurrounds current volatility and the possibility of a recession, why not look\nat how to posture your portfolios for a late cycle, mature bull market? In my\nopinion, that means staying focused on hard data and key economic indicators.<\/p>\n\n\n\n<p>Our just-released Stock Market Outlook report can help you\ndo just that. This 22-page report contains some of our key forecasts to\nconsider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Our Global\nOutlook \u2013 China\u2019s Economy, the Trade-war and More&#8230;<\/em><\/li><li><em>Can a U.S.\nstock market bounce back this fall?<\/em><\/li><li><em>Stock\nmarket returns expectations <\/em><\/li><li><em>What of\nU.S. GDP Growth? <\/em><\/li><li><em>Returns\nfor Small, Mid, and Large Cap stocks <\/em><\/li><li><em>And much\nmore.<\/em><\/li><\/ul>\n\n\n\n<p>If you\nhave $500,000 or more to invest and want to learn more about these forecasts,\nclick on the link below to get your free report today!&nbsp;<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_18&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released August 2019 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_18&amp;content=stock_market_outlook_report\">1<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>______________________________________________________________________________<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2019-8-17-MOTM-Image-1-of-1.png\" alt=\"\" class=\"wp-image-8170\"\/><\/figure>\n\n\n\n<p><strong><em>Source: U.S. Department of\nthe Treasury<sup>2<\/sup><\/em><\/strong><\/p>\n\n\n\n<p>Recession\nconcerns are not without merit. The U.K. and Germany recently reported slight GDP\ncontractions in Q2, and the ongoing U.S. &#8211; China trade dispute continues to\nweigh on sentiment and new business investment. Even though the market got some\ngood news earlier in the week with the Trump administration delaying\nimplementation of new China tariffs until December,<sup>3<\/sup> the market does\nnot seem convinced that there\u2019s a visible end to this trade war. &nbsp;<\/p>\n\n\n\n<p>In\nmy opinion, we\u2019re seeing the classic signs of a market correction \u2013 not a bear\nmarket. The two most notable sell-off days recently have come from renewed\nfears over old, recycled stories. Last week it was China, the trade war, and\nthe yuan, and this week it\u2019s the yield curve. But in my view, the market has\nbeen pricing in the trade war since last summer, and close market watchers know\nthat the yield curve has technically been inverted since May \u2013 when the 3-month\nyield ticked higher than the 10-year yield. Even still, the headlines are\ntreating these developments as if they\u2019re new and wildly shocking. They\u2019re\nneither. <\/p>\n\n\n\n<p>I think there are three good reasons to keep calm now and not to get too wrapped up in the negative headlines about the yield curve.<\/p>\n\n\n\n<p><strong>1. Markets Tend to Keep Moving Higher Even After a Yield Curve Inversion<\/strong><\/p>\n\n\n\n<p>Since 1978, the S&amp;P 500 has gone up an average of +13% from the time a yield curve first inverts to the beginning of a recession. The historical occurrence of this final push higher makes perfect sense in my view, since a yield curve inversion itself does not signal the beginning of a recession. The inversion has historically been a reliable <em>leading indicator<\/em> for recessions, which can occur up to two years later.<sup>4<\/sup> \u00a0<\/p>\n\n\n\n<p><strong>2. Successful Long-Term Investors Don\u2019t Get Baited by Volatility Events<\/strong><\/p>\n\n\n\n<p>In my view, investors cannot\nsecure the historically attractive long-term returns offered by stocks (~10%\nannualized return of the S&amp;P 500 with dividends reinvested from 1970\nthrough 2019) by getting in and out of the markets each time there\u2019s a\nvolatility scare. The nature of stock market returns is that market movements\nare independent over almost all time periods. Thus, big down days, big down\nweeks, big down months, even big down years have no statistical ability to\npredict future returns. <\/p>\n\n\n\n<p>Effectively, the market\ndiscounts almost all available macroeconomic information, so that over any future\ntwelve-month period the market has roughly a 70% of moving up and a 30% chance\nof moving down &#8211; regardless of what has happened historically. <\/p>\n\n\n\n<p>So, the correct course of action, in my view and historically speaking, <em>is not to try to predict or time the market but to continue to bet on the base scenario that the market moves up over time<\/em>. If you pursue this strategy you will be right 70% of the time over any given 12-month period. You will be hit by every single bear market, every single correction, and every single pullback, but ultimately, I strongly believe you will generate a higher rate of return over time than you could achieve by trying to time the market. <\/p>\n\n\n\n<p><strong>3.<\/strong> <strong>August is a Notoriously Low Volume Month, Which Can Result in Higher Volatility<\/strong><\/p>\n\n\n\n<p>Market\nswings tend to get a bit haywire when trading is slow and volumes are down,\nwhich is precisely what August tends to bring. In August 2011, the equity\nmarket fell sharply following Standard &amp; Poor\u2019s downgrading of U.S.\nTreasury debt, and in August 2015 stocks sold off when China unexpectedly\ndevalued its currency (sound familiar?). This particular August, stock and bond\ntrading volumes have fallen off more than usual, which I would argue is\ncontributing to the wild swings.<sup>5<\/sup> <\/p>\n\n\n\n<p><strong>Bottom Line for Investors <\/strong><\/p>\n\n\n\n<p>I would set the expectation that\nthe current wave of bumpiness could last for a few more weeks and perhaps into the\nfall. At the end of the day, however, no one can know with certainty when\nconditions will stabilize.<\/p>\n\n\n\n<p>We do have history as a reliable guide for navigating these kinds of market conditions, though, and two key insights should remain front-of-mind as we move forward: <\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>Recoveries\noften happen just as quickly as the pullbacks.<\/li><li>Market\ncorrections can almost always be viewed in hindsight as mere speedbumps in the\nlong-term pursuit of your goals. <\/li><\/ol>\n\n\n\n<p>Remember, too, that equities\nremain attractive on a valuation basis relative to bonds, due to extremely low\nyields. &nbsp;<\/p>\n\n\n\n<p>In the meantime to help you get a deeper look into these and other factors that could impact the market, I am offering all readers our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_18&amp;content=stock_market_outlook_report\">Just-Released August 2019 Stock Market Outlook Report. <\/a><\/strong><br> \u00a0<br> This Special Report is packed with newly revised predictions to consider for 2019 that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Our Global\nOutlook \u2013 China\u2019s Economy, the Trade-war and More&#8230;<\/em><\/li><li><em>Can a U.S.\nstock market bounce back this fall?<\/em><\/li><li><em>Stock\nmarket returns expectations <\/em><\/li><li><em>What of\nU.S. GDP Growth? <\/em><\/li><li><em>Returns\nfor Small, Mid, and Large Cap stocks <\/em><\/li><li><em>And much\nmore.<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>6<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Inverted yield curve gets the blame, but does it signal an imminent recession? <\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8167","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8167","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8167"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8167\/revisions"}],"predecessor-version":[{"id":10725,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8167\/revisions\/10725"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8167"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8167"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8167"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}