Well, yesterday was an exciting day in the market - right?! Ok, so here are a few thoughts as I reflect on the messages and conversations I have had in the last 48 hours. Hopefully you will find this helpful, insightful, and maybe a bit entertaining.
Disclaimer: this is just In Myra's Opinion (IMO) and no where in here is advice, because social media is just a bad place to get advice. Don't let your finances become a Pinterest Fail - talk to a professional if you have questions relating to your personal situation!
1. Who made the Dow Jones Prom Queen? All of the US indices had declines yesterday but certainly the largest attention was given to the Dow Jones because of the relative percentage of decline in that index (oh and because the point number was much more sensational). The DJ is like that popular cheerleader who has a small clique of friends and is completely oblivious to the world around her. There are only 30 companies in the DJ Index, all US, and it is price-weighted. This means that any significant change in the price of a single security can create a big upset within the index. You know, like forgetting your cheer uniform on a pep-rally day, it is easy construed as the end of the world! There are hundreds of indices that measure different aspects of the market. Within the US stock arena alone there are at least 90 indices and none of them are a complete picture of market conditions when viewed as a stand alone measuring stick.
2. The stock market doesn't always like good news. You know that one guy in the break room that always shoots down your positive vibes and finds flaws with your good news. Yeah, the stock market can be that guy sometimes. ESPECIALLY when a really positive jobs report comes out like it did on Friday. When some economic factors like jobs and wages are doing well, these are signals that the economy is improving and the FED likes to go into action to make sure it doesn't grow too fast and cause inflation. Usually the response is to raise interest rates which stock markets don't like because that means borrowing money costs more. Why is this important? Companies borrow or reinvest in themselves to help raise profits - when more money is going to interest and less on internal spending or profits it is reflected in the share price of a publicly traded company.
3. OMG! It's crashing! No, Correction - it isn't a correction....fine, what do we call it then? The mainstream media had some pretty sensational adjectives and verbs to describe what happened yesterday and none of them really explain it. Why? Because it isn't that simple. A correction is defined as a 10% change in the market pricing - we were close to that but not quite, and yes, you have to get technical about these things or we start calling a 5% flux a correction and panic ensues. So what would I call it? Overvaluation and a nice looking treasury bond sell off - but that isn't catchy. Honestly, we have been a bit conditioned and spoiled in the last few years to just accept and expect rising rates. No one really made that big of a deal when the DJ's crossed 26,000 points. Sure it was mentioned and flashed on the news but it didn't take up a whole news cycle for a day! Maybe this is because the rise is slightly gradual (taking a few days to get up that hill) versus a few hours to come down the back side of it. Honestly, we should side-eye extreme increases with as much scrutiny as we do these decreases. It should be viewed through a lens of healthy research and tempered with an introspection of our own sense of fear and greed. mermaid trumpet style prom collections
4. Last but not least - sometimes short is just too short no matter what. Yup, just like a dress code there are somethings that are too short to be appropriate. You shouldn't make long term and life altering investment decisions based on a short period of volatility. There is a reason a recession isn't declared for two consecutive down quarters. Most mainstream investors hold mutual funds that don't trade until the end of the day, so making real-time decisions to buy and sell based on these short-term fluctuations might create more drama in your portfolio. Don't let fear or greed drive your investment bus.
Ultimately, the best way to react to any short term market fluctuations is to have a meaningful conversation with an advisor who knows you, your goals/dreams, and your overall needs. An advisor can help answer questions, provide some perspective, and assist you with taking action or making changes that are in your best interests.