10/12/2018 Weekly Update: Dealing with Drawdowns

Weekly Recap

S&P 500                -4.12%

10 Year Treasury   +0.56%

Gold                      +1.14%

Volatility              +44.6%

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

Calibrate Wealth
515-371-5316  

https://www.calibratewm.com/blog-01

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