Market Correction

arrow symbolizing a declining stock market

DJIA, NASDAQ and S&P 500 correct after big run up in the 3 major equity markets

Today, September 3, 2020 the U.S. equities market corrected.  This is normal and it usually follows a run up in stock prices.

It was just yesterday that the S&P 500 and the NASDAQ Composite Index hit record highs.

Yesterday was also the first time that the NASDAQ Composite had climbed to 12,000 points.

Both the S&P 500 and the NASDAQ are up for the year, but the DOW is down for the year through today’s close.

Since the NASDAQ had been going up for months, I figured it was just a matter of time before something like this would occur.

A few weeks ago, I decided to sell all of the funds that invested in the FANG technology stocks, even though they were performing exceptionally well.  F = Facebook, A = Apple, N = Netflix, G = Google.

Throw in an additional “A” for good measure, A = Amazon.  This gives you FAANG.  Those are the big names that I wanted to get out of, which I did.

The funds that I owned were made up primarily of these five companies.  That is not much diversification.

I sold them all and immediately purchased more conservative funds. 

When your funds are performing extremely well for you this is not something that is easy to do, but I did it anyway.   

In my opinion, this move softened the decline in my portfolio value due to the drop in the markets today.

Market corrections are normal

You should not expect the equity markets to continue going up without days when they will drop.  A correction like the one that occurred today is normal and should be expected.

That is why you should be dollar cost averaging into the markets.  You also need to know your risk tolerance.

By dollar cost averaging you won’t be investing a lump sum of money into the market.  Instead, you will be buying in at intervals such as once a week, once a month, once a quarter, etc., which reduces your investment risk.

Another way you can reduce your investment risk is by investing in no-load mutual funds and/or exchange traded funds (ETFs) rather than investing in a single stock or handful of stocks.

This is called diversification.  It is far less risky and the investments are professionally managed in a mutual fund.

Today the DJIA dropped 807.77 points (-2.78%) to 28,292.73, the S&P 500 declined by 125.78 (-3.51%) to 3455.06 and the NASDAQ Composite was down 598.34 points (-4.96%) to close at 11,458.10.

Is the market going to keep declining or is this a one day event?  Don’t know, but likely not just a one day event, in my own opinion.

There are a number of factors that are affecting this market right now

  • consumer confidence
  • the end of the quarter is coming up
  • an election is coming up in sixty days
  • lack of stimulus checks to help keep the economy from collapsing
  • the information being put out by the Federal Reserve about the economy is not good

 

When consumer confidence is low people don’t spend money.

Since the market hates uncertainty, the market is dropping.

Mutual funds are dumping stocks they don’t want to own in order to make quarterly reports of their stock holdings look good for both new and current investors.

Unemployment is not good right now and the lack of stimulus is causing a lot of people to suffer.

However, should the members of both houses of Congress end up passing a stimulus bill(s) sometime in the month of September, and providing that the there is no Government shutdown due to a lack of a budget bill, the stock market could continue going upward rather than downward.

Either way, you should continue to dollar cost average over a long period of time regardless of what direction the markets are moving.  This will insure that you don’t end up buying at the top of the market if you only made one buy transaction.

It is very important to have an emergency fund set up first and that you only invest money that you don’t need for things like food, medical, shelter and transportation.

 

Jim Juris Signature

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