Wild ride: Pros urge stock investors to ‘stay the course’ as market plunges — and bounces back up

La Mar T. Gunn

DOVER — Don’t panic.

The U.S. stock market has proven resilient during just such a drop.

This week, wealth managers urged clients to stay the course after two days of plummeting portfolios and dropping 401(k) balances.

Local investment advisors answered some concerned calls and emails, but only a few.

With economic data and leading indicators “pretty clearly all positive,” Lokken Investment Group owner John Lokken said there’s nothing yet that indicates that a severe drop akin to 2001 or 2008 is upcoming.

In fact, the Lewes-based managing principle that there have been only two years since 1980 without a pullback of five percent or more, with the average drop of 14.1 percent. Early Tuesday afternoon, Mr. Lokken said the correction was at about 8.5 percent.

Stocks rallied Tuesday as a late surge helped them regain almost half their losses from the day before, when they had their biggest plunge in 6 1/2 years, the Associated Press reported. That came at the end of a day of heavy trading and huge swings for the market.

Major indexes in Asia and Europe took steep losses and U.S. markets started sharply lower, only to repeatedly change direction. After its 1,175-point nosedive Monday, the Dow Jones industrial average lost 567 points right after trading began. After numerous turns higher and lower, it wound up with a gain, coincidentally, of 567, the AP said.

Despite the turbulence, the AP said, Tuesday’s trading looked similar to the patterns that have shaped the market for the last year: investors bought companies that do well when economic growth is strongest. Gainers included technology companies, retailers like Amazon and Home Depot, and industrial companies and banks.

Bond yields turned higher after a sharp drop Monday. As a result, the biggest losses went to high-dividend companies such as utility and real estate companies, which investors often buy as an alternative to bonds. When bond yields rise, those stocks become less appealing to investors seeking income.
The yield on the 10-year Treasury note rose to 2.80 percent from 2.71 percent.

The Dow finished 567.02 points higher, or 2.3 percent, at 24,912.77.

The Dow is still up 21 percent over the past 12 months, and the S&P 500 is up 15 percent, the AP reported early in the afternoon.

Resuming the rise

Previous corrections have been resolved in four to six weeks before a resumed rise, Mr. Lokken said. The 2008 crash that shaved 50 percent of value taking 5 1/2 years to restore has some skittish, he said.

For 18 months, though, Lokken has reassured investors through newsletters and meetings of the sound economic foundation that will fuel the next stock market ascension.

From his Wealth Management Group office in Dover, wealth strategist Scott Brown described himself and cohorts as “behavioral managers” during the recent short stretch.

The stock market’s rise may have “overheated” and Mr. Brown said on the lessened regulation of corporations with President Trump in office. Then came talk of potential interest rate hikes and other comments by departing Federal Reserve chair Janet Yellen for counterbalance.

“It’s important to make sure that fear and greed don’t take over,” he said. “If you’re going to make moves you’ve got to be right twice – when to get out and when to get back in.”

Indeed – La Mar Gunn of Gunn Wealth Management in Dover urged investors to not “follow the herd heading for the exits.” His long-time clients “have been coached to understand what this means.”

Mr. Gunn believes that concerned investors with retirement funds at work should contact advisors in the plans and request a meeting “to talk about their hopes, and goals and dreams and see if they are still on track.”

Mostly continued contributions to retirement accounts are cheaper for now. Stretched out over a longer period, consistent investment has paid off handsomely through the ups and downs.

“If there was no risk then you wouldn’t have the rewards you have received,” Mr. Brown said.

The stock price drops means assets can be bought at cheaper rates for the time being. Mr. Gunn believes there’s opportunity to “put cash to work” since stocks are selling at discount prices.

“There are very good companies with solid earnings and continually improving balance sheets,” he said.

“As long as companies continue to turn the lights on every day, produce and sell products you’re going to be OK.

“The fundamentals of the stock market are still OK …”

Easing the stress

Long-term diversification in several asset classes are designed to ease the stress of corrections said.

“Companies are on good footing with lots of cash,” Mr. Brown said.

According to the AP, Treasury Secretary Steven Mnuchin says the stock market has been “quite volatile” in recent days, but that has not shaken his view that the underlying economy is strong.

He did keep an eye on the market’s performance during his congressional testimony Tuesday morning.

“I normally wouldn’t be looking at my iPhone, but given the market moves, I am checking it,” he told lawmakers on the House Financial Services Committee. “It is now up 187 points so we are back up today.”

Mnuchin said that he was not “overly concerned about the market volatility. I think the fundamentals are quite strong.”

Mnuchin said he had checked with market participants earlier Tuesday and had been assured that markets had functioned well with no systemic issues during the big market declines on Monday.

Corrections are seen as entirely normal during bull markets, and even helpful in curbing excessive gains and allowing new investors to buy into the market at lower prices, the AP said. It has been an uncommonly long time since the last market correction, which ended almost two years ago.

Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, said the plunge wasn’t caused by inflation fears alone. The markets have been unusually calm since late 2016, and he said investors were betting that would continue.

“People were positioned for more central bank easing or continued central bank easing, low rates, and importantly, low volatility,” he said. “Corrections are caused by people having to reposition for new environments.”

Investors remain fearful that signs of rising inflation and higher interest rates could bring an end to the bull market that has sent stocks to record high after record high in recent years.

Friday’s U.S. jobs report showed wages grew at a faster pace in January, and investors worried that means inflation is speeding up, and that the Federal Reserve will have to raise interest rates faster than previously expected in order to keep that inflation in check. Higher rates act like a brake on the economy by slowing down borrowing and lending.

Mr. Schutte, of Northwestern Mutual, added that corrections can end quickly, and they often do so when investors see evidence of continued economic growth. Experts do think the global economy will keep growing this year even though that is likely to bring more inflation. Mr. Schutte said that as central banks stop propping up the market, trading will probably be more volatile in the next few years.

The Associated Press contributed to this story.

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