It’s been a Long Year This Week…

6

We have had the worst start in the US stock market to the year since 1928.  It all started from China where they experienced the worst start ever in their market.

 

One of the issues in China was their circuit breakers.  They installed circuit breakers (market closes with a 5% loss) into their market to try to stem the selling.  Instead, it did the opposite.  Chinese traders, nervous that the circuit breaker will be hit, sold stock in anticipation helped exacerbate the selling thus tripping the circuit breakers.  An example of this was Thursday when the market closed 15 minutes after opening.  This compounded the losses and caused the rest of the world to go into a selling frenzy.  China has decided to suspend the circuit breaker system and things have calmed down there as their market rallied over 2% on Friday.

 

Other “explanations” for the current pullback are North Korea’s nuclear testing, oil prices plunging and Middle East tension (Saudi Arabia/Iran).

 

During times of volatility you always have to remind yourself about what goes into investing.  Among other things, it’s time horizon, risk tolerance, income needs and goals.  Your time horizon should match your needs and goals.  For example, if you are buying a house within 6 months that money should be invested safely so you’re not putting it at risk.  On the other hand, if you have money in a retirement account and will not be “touching” it for an extended period of time, then it would allow you to take more risk with that money as you have a longer time frame.

 

Looking at history, since 1928, there have been 33 times that the market has fallen in the first week of trading.  Almost half the time the stock market had a positive year.  So no, one week does not make a year.

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