Current Perspective – Part I: Our View on the State of the Markets and the Economy
At the worst point yesterday, markets were down 10% from this year’s market highs, right in the range of a typical market correction. Market levels are where they were in mid-April of this year. While it’s natural for the current market volatility to put fear in all of us, and cause us to want to “stop the bleeding” by getting out of the market, here are a few facts to help you keep things in perspective:
1. Over the past 75 years, the markets have averaged a market correction of about 10% every year yes, that’s an average of once every year.
2. Last year, in the early spring, late fall, US Markets experienced a correction about the same magnitude of today’s correction. By the end of the summer, the market had recovered and we ended the year with very healthy returns. While we can’t promise that something similar will happen here, we still believe this is a market correction, not the beginning of a bear market.
3. While things look bad for companies involved in sub-prime loans, and for investments in those companies, the rest of the economy continues to demonstrate strength. Corporate earnings announcements have been strong and are a key factor to watch as we move forward.
In the words of Adam Bold, our Chief Investment Officer, “Underneath it all, the economy is very strong. This should bode well for stocks throughout the balance of the year. I think we could still end the year with the markets up 10 to 15%.”
