The last few days have been tough for investors. Most of the time markets are driven by economic fundamentals (i.e. earnings, valuation, growth, unemployment, inflation), but then there are pockets of time where fear and greed overpower fundamentals and we see some pretty severe short-term shifts. Recently economic fundamentals have been strong, unemployment is low, inflation is low, interest rates are low (although rising), earnings are high, and future earnings are expected to be high. Over the last week, fear of rising interest rates, higher inflation, and lower future earnings have taken hold of the markets without much actual change in economic data.
In our last message, we had described how growth stocks have outperformed value stocks and compared growth companies like Amazon and Apple to value companies like AT&T and PPL. This recent decline has been caused mostly by larger growth companies coming back to earth. Amazon is down 8.89% from our last update (9/19/18 – 10/10/18), while PPL is actually up 3.15% over that same time period.
Although a smoother ride would be more enjoyable, we have to remember that volatility is part of investing and staying the course during these times is important for future returns. Over time, a diversified portfolio aligned with your financial goals is the best strategy regardless of whether fear or greed are in control.
Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. Fixed insurance products and services offered by Milestone Financial Associates, LLC are separate and unrelated to Commonwealth.