Recent ‘mood swings’ (volatility) in the markets

Given the recent ‘mood swings’ (volatility) in the markets, I think it’s important that I provide a sense of perspective. There is no question that when we wake up to a 1000 point drop on the DOW Jones and it bounces back 800 points in 2 hours it tests the convictions of investors. As your trusted advisor who selects the money managers for your savings, we have always focused on the growth with capital preservation. You have heard me say this over and over, “it’s not what you make, it’s what you keep”. As a result of our disciplined active investment management process, you have done well, and should feel confident about the future.

Here are some stats (btw – people tend not to pay attention to stats until they become one):

Market corrections are normal. On average you have:

• 3 corrections of 5% per year.
• 1 correction of 10% per year.
• 1 correction of 20% every three years.

The question then becomes is this current market volatility a garden variety correction or the end of the bull market? There are two elements that can bring an end to the bull market:

1. A recession in the United States
2. A global financial crisis

Our view is that it is very unlikely that the U.S. is entering a recession, but rather a correction. Historically, U.S. recessions are caused by two things:

1. The US Federal Reserve aggressively tightening interest rate to fight inflation.
2. Businesses cutting back as they have too much inventory.

We believe this is a garden variety correction and that there is no real data to support that the U.S. is in a recession or that we are heading towards a global financial crisis. Markets appear to be oversold. We have all experienced significant sell-offs (downturns) in the market during the past six years, none of which signalled the end of the bull market. The most destructive equity market sell-offs have typically been associated with economic contraction and the odds of a global recession remain rather low.

Final thoughts to keep in mind:

1. Corrections are normal and the above two factors that would make this a big one are NOT present.
2. This is a buying opportunity as we are not yet at the bottom but are getting their quickly.
3. Stay the course.

Thank you and enjoy the rest of your summer!

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604.531.0022


Aaron Fransen   CFP® , CHS, CPCA   |   CERTIFIED FINANCIAL PLANNER®, Investment Advisor   |   Suite 203 - 15350 34th Avenue, South Surrey, BC V3S 0X7   |   Tel: 604.531.0022