Report Papers

Market Turbulence

A Note to Clients About Market Turbulence – August 25, 2015


It came as a pleasant surprise this week that, as the market slid downward, very few of our clients called in for reassurances. It seems that our age old message about sitting tight and weathering the storm through difficult markets has been heard. Markets expand and contract. Since 1900, there have been roughly 35 “market corrections” of the S&P 500, that is, price declines of more than 10% to adjust for overvaluation. These corrections generally come once every year and last roughly 115 days. Our last market correction was more than 1,000 days ago, the third longest period on record. Therefore, it seems as though we were long overdue to get tossed about by the waves a bit following an extended swell.

The most recent correction was fueled largely by the flagging economic growth in China. To be sure, lingering concerns over Greece, falling commodity prices, and the looming interest rate increase by the Federal Reserve all played their part. However, China was the catalyst. Over the past three decades China’s economy, now the second largest in the world, experienced an average annual growth rate of 10%. By comparison, over the past 50 years U.S. economic growth has averaged out to around 3% a year. As Chinese economic growth has slowed to more sustainable levels, the Chinese markets have become more volatile as investors worldwide reevaluate holdings in light of mature growth expectations.

On Friday, August 21 the Dow Jones Industrial Average plunged more than 3%. This past Monday, it fell another 3.5%. The Nasdaq and S&P 500 both experienced similar tumbles. This officially brought us into correction territory with the Dow Jones down more than 10% year-to-date. However, as we write this on Tuesday there is a glimmer of relief shining bright on the horizon. Though Chinese markets continue to fall, the FTSE 100 in Europe is trading up almost 3% and S&P futures are up more than 3%.

So what is the take away? Like the tide, the markets ebb and flow. We have carefully crafted client portfolios to weather just this type of storm. If we sit tight and ride through it rather than jumping ship at the height of chaos, then we should be rewarded with good weather and smooth sailing soon.

Your diligent team at Deighan Wealth Advisors