Market Volatility and Emotions
By Steven Higgins, Financial Advisor, Principal
Yesterday – Monday February 5 – saw the DOW Jones Industrial average decline by 4.5%. At the market close the DOW was 8.5% below its record high set on January 26th. This volatility comes as a contrast to last year which saw no declines of more than 3%. A “normal” year for the DOW would see approximately three 5% corrections and one 10% correction. If this decline does reach the 10% correction level it will mark the third decline of at least 10% in the last 2.5 years. So as far frequency is concerned, this correction is quite normal. Over the same 2.5 years the DOW Jones Industrial Average has increased almost 35%.*
While it is completely normal to have an emotional aversion to market declines, we often need to check ourselves if we become engulfed by the chatter that often comes with these events. Emotions disconnect us from our planning process and make us forget how much we prepared for this beforehand. It is important to remind yourself that market volatility is part of a normal healthy environment.
Our planning and investment process accounts for market corrections, and by diversifying client portfolios in advance, our clients were prepared. We continue to stress that increasing inflation may play a significant role in the economic narrative going forward. Inflationary periods are often accompanied by market volatility as well as market gains. While this correction may have arrived suddenly, it is normal. Market fundamentals are still strong and economic data continues to be positive.
If you have any questions or concerns, please do not hesitate to reach out.
*All sourced from bloomberg.com
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through HD Wealth Strategies, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not ensure a profit or protect against a loss. Stock investing involves risk including loss of principal. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
