February Market Fluctuations: Keeping Perspective
AK Equity Group
At times, the cause of market volatility can be explained by a single event, such as Brexit or September 11th. But more often, the cause of market fluctuations is complicated; there are a confluence of factors in play.
While February’s market volatility can’t be traced to a single cause, there were a series of likely contributing events, such as rising interest rates and the release of US payroll figures on February 2, which showed stronger than expected wage growth figures.
By February 8, the Dow Jones was officially in correction territory, with a downswing of more than 10% below the record high reached in late January. This was a marked change from the long-lasting bull market conditions we have had; a period also defined by low volatility, with market growth increasing in steady increments.
Keeping Perspective: Numbers Vs. Percentages
A figure such as “1000 points” on the Dow Jones certainly draws attention and can spark strong emotion in investors.
It’s important to remember that the big numbers we observe on the Dow Jones are partly a testament to the growth achieved already; because the Dow Jones had reached a record high of about 25,000 in January, a 4% move is 1000 points.
It may be helpful to consider market fluctuations in terms of percentages (4% vs. 1000 points), which can aid investors in insulating their emotions from the big numbers marked in February.
Reacting hastily to market corrections can cost investors in the long term.
A Big-Picture Perspective
In the last 20 years, we’ve had 10 market corrections (defined as a market correction of at least 10%). February’s market fluctuations, while they may sting for investors, are well within “normal” market behavior.
While there can be a tendency among some investors to want to react hastily to February’s events, it’s best to take a more long-term, big picture perspective. If you don’t need to take out your money soon, staying the course, and potentially rebalancing your portfolio, can pay off.
It may also be a time to reflect on how risk-averse you are, and whether your portfolio matches well with your risk comfort level. If market corrections are keeping you up at night, perhaps it may be time to consider investments such as bonds, which can provide stability during downturns.