Here we go again. After having the biggest ever advance on an election day, the S&P 500 experienced another gut wrenching sell off with the biggest two day decline since 1987 – Wednesday and Thursday of this week. Clearly the market is still digesting the bout of bad economic reports, including payrolls which indicate the highest jobless rate since 1994 at 6.5% and a 4.6% decline in the sales of existing homes. Both reports were worse than expectations. The news out of Detroit is particularly bleak, with the big three burning cash at an astonishingly high rate, as vehicle sales cratered in the last two months.
With such horrendous news in the economy one would be led to believe that the stock market would be teetering on the edge of another precipitous decline. This is not necessarily true. As we have said, the stock market is a leading economic indicator. The market is down tremendously over the last year, during a period of economic growth. As the economic clouds darken, the stock market is forward looking towards the horizon for the slightest sign of a break in the clouds, at which time we could experience a sizable and unexpected rally in the midst of the storm.
Take this time to focus on the things you control. Review your family cash flow statement with an eye towards reducing discretionary expenditures. If you are in an accumulation phase, increase your savings rate, and buy stocks when they are cheap. If you are in the distribution phase, rebalance your portfolio by increasing your dividend income and improving diversification. Most of all keep a clear head and don’t let the emotions overwhelm your decision making.
Rick Manske, CFP