Correction?

When I wrote to you about the selloff in equities last Friday (8/21/15) morning, I indicated I expected another 2-3% of potential downside.  I didn’t, however, expect that to all happen that day.

The stock market looks pretty ugly again this morning (8/24/15).  While the last few days have been bad I wanted to put it in perspective for you.

Generally a correction is considered a decline of 10% from the previous high.  The stock market (basis S&P 500) had a 9.9% correction just last October (2014), yet finished higher for the year. This decline happened from 9/19/14 through 10/15/14, which was followed by a gain of 13.1% from the intra-day low on 10/15/14 through the end of the year.  This gain was despite a 5.1% decline between the intra-day high on December 5, 2014  through the intra-day low on December 16, 2014 (source: Yahoo Finance)

Blog 8-24-15

As of the closing price on Friday 8/21/15, the S&P 500 has declined 7.7% from its previous intra-day high on May 20,2015.  The S&P would have to decline to 1,921 to reach correction territory (it traded below this level early on 8/24/15 but let’s see where the market closes).

Generally, a less than 5% drop is considered a “pause,” a 5% – 10% slide is termed a “dip,” a 10%+ decline is a “correction,” and a 20%+ plummet is a “bear market.”  Here is a great chart on the size, and frequency of these level of declines.

Blog 8-24-15

Source: Advisors Capital Management

The moral of the story is that the current declines in the stock market are quite concerning but not at all unusual.  As such I am not taking any significant action at this time.

Here is an article from Jack Bogle – the founder of Vanguard – about how he is dealing with this situation.

“Don’t do something. Just stand there,” he quips. Aside from concerns about debt, the long-term fundamentals in the U.S. economy are sound, he pointed out. Unless you need your money in the short term, leaving your money in a portfolio with the right weighting of stocks for your age and risk tolerance still gives you the best chance for success in the long term—even in a volatile or falling market. Bogle himself isn’t making a move.

http://www.cnbc.com/2015/08/24/jack-bogle-best-moves-now-to-ride-volatility.html

Feel free to call me with any questions or concerns.

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

 Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

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