Volatility has increased dramatically in recent days as the market correction has intensified. Corrections are a normal process in the larger context of a secular bull market. Even a correction of 10% or more is not unusual. Though there are many concerns including geopolitical issues and economic weakness in Europe, the Ebola scare has exacerbated the action. The concern about a contagious virus reduces confidence in the economic outlook as witnessed by the selloff in airline stocks and oil.
It is times like this that cause decisions to be made on an emotional basis. More often than not, emotional decisions are regretted in hindsight. Corrections are supposed to be scary. As humans, we tend to “throw in the towel” at exactly the wrong moment. This capitulation usually sets the bottom for the next market accent. We encourage our clients to focus on the fundamentals and avoid emotional reactions to the current volatility. We believe patience here will be rewarded.
As mentioned in our recent Quarterly Market Overview, the fundamentals of earnings direction and valuation, interest rates and the amount of liquidity available to the market, point to better times ahead. Even today’s Initial Jobless Claim figures came in at the lowest level since April 2000. Though slow, the economy continues to show signs of better growth to come. Ultimately the market only cares that things are improving looking forward. Stocks are simply “on sale”. We are about to enter the best six month period for the equity market and, though the short term is difficult to predict, we remain bullish intermediate and longer term.
