10/12/2018 Weekly Update: Dealing with Drawdowns
by Zach Marsh on Oct 12, 2018
S&P 500 -4.12%
10 Year Treasury +0.56%
Weekly Update: Dealing with Downturns
Well, the markets sure got skittish in a hurry this week. Gains that took the market roughly 4 months to acquire were wiped out in the matter of 2 days this week. Eye popping numbers like Dow Jones Industrial Average down 800 points attracted the headlines. When that was followed up by another 600 points we really started to feel uneasy. The markets really do seem to take the escalator up and the elevator down.
So, what do we do when things get uncomfortable? When hearing another yarn about being in it for the long haul sounds like nails on a chalkboard? Well, we need to get back and assess the reasons we invest in the first place. Most of us invest for reasons that require long-term growth. While we may have immediate goals, like retirement income, our other goals stretch out into the future. If we invest accordingly then we can feel a more comfortable with shorter term volatility. We need to hold cash back to fund those immediate goals, because the market is much too volatile for us to stake our lives upon appreciation over any period less than 3 years. This isn’t a prognosis that has changed this week, it is a statement for all market climates. With an adequate budget and plan in place we should resist the temptation to overreact to weeks like this. In fact, we should probably remind ourselves that we’ve seen this type of volatility before and will again. It seems simple, but yet we all fall prey to the same tendencies, to shorten our time horizons when things get uncomfortable.
Now, where do we go from here? The S&P 500 is approaching correction territory and is resting on long-term trendlines. However, typically these levels get retested and may not provide an immediate bounce back. Last February, when the market fell 10% in 2 weeks, we didn’t regain our upward trend until after a retest in April. Now all trendlines eventually get broken and we will be on the look out for a change in longer-term sentiment. Today’s market reaction was typical of short-term exhaustion. After a higher open, the S&P 500 retested yesterday’s low levels. It bounced nicely from those levels to close back towards the levels from early this morning. This type of price action can illustrate that the short-term fear may be subsiding.
That’s all I have for today. I wish you all a pleasant weekend.
Thanks for reading,
Zach and Dave
All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results. Tax laws are complex and subject to change. Calibrate Wealth LLC, does not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Calibrate Wealth. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
This material does not provide individually tailored investment advice. It has been prepared without
regard to the individual financial circumstances and objectives of persons who receive it. The strategies
and/or investments discussed in this material may not be suitable for all investors. Calibrate Wealth
recommends that investors independently evaluate particular investments and
strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a
particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Investing in commodities entails significant risks. Commodity prices may be affected by a variety of
factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii)
governmental programs and policies, (iii) national and international political and economic events, war
and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities
and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other
disruptions due to various factors, including lack of liquidity, participation of speculators and
Foreign currencies may have significant price movements, even within the same day, and any currency
held in an account may lose value against other currencies. Foreign currency exchanges depend on the
relative values of two different currencies and are therefore subject to the risk of fluctuations caused by
a variety of economic and political factors in each of the two relevant countries, as well as global
pressures. These risks include national debt levels, trade deficits and balance of payments, domestic and
foreign interest rates and inflation, global, regional or national political and economic events, monetary
policies of governments and possible government intervention in the currency markets, or other