Volatility Blvd. - How to Navigate
ROBARE & JONES ON THE MARKETS
The S&P 500 fell 2.4% this week on concerns about inflation and monetary tightening. It has fallen 2.6% in May so far and has declined nearly 16% in the year to date.
The data showed consumer prices rose 8.3% on an annual basis in April, down slightly from March's 8.5% annual rate, but high enough to concern investors. The core consumer price index, which excludes food and energy due to their volatility, was up 6.2% on an annual basis and producer prices up 8.8%, the Bureau of Labor Statistics said.
Real estate led the way down with a drop of 3.9% on the week. Just one sector managed to avoid ending the week in the red: consumer staples, which eked out a 0.3% increase.
Retailers including Home Depot (HD), Walmart (WMT), Lowe's (LOW), Target (TGT) and Foot Locker (FL) will report next week. Other companies expected to release quarterly results next week include Cisco Systems (CSCO) and Deere (DE).
Economic data expected this week include retail sales, building permits, housing starts and existing home sales for April.
Let's take a look at the markets from this past week!
Consumer Sentiment Volatility!
Over the last 50 years, there have been other events that caused investors to think the worst. For example:
- Black Monday. At the end of trading on October 19, 1987, stock markets around the world had experienced the biggest one-day decline in history, according to the Federal Reserve. The Dow Jones Industrial Average lost 22.6 percent that day and finished at 1,739. (The Dow had gained 44 percent during the previous seven months.)
Last week, the Dow closed at 32,197.
- The Dotcom Bubble. In the 1990s, everyone wanted to participate in the commercialization of the internet by investing in technology companies – even those that weren’t profitable. A speculative bubble formed and popped, reported Adam Hayes of Investopedia. The Nasdaq Composite Index lost almost 77 percent from March 2000 to October 2002, when the Index moved up from a low of 1,114.
Last week, the Nasdaq finished at 11,805.
- The Housing Market Crash. The subprime mortgage market grew fast in the early 2000s, following a change in regulations. Lower-quality mortgages were often included in mortgage-backed securities. When home prices fell, borrowers defaulted, and financial markets were disrupted, reported Paul Kosakowski of Investopedia. The S&P 500 fell from 1,565 in October 2007 to about 1,276 in March 2008.
During periods of volatility things can look scary ahead, and that's why it's important to stay focused on the long term goals
Have the markets changed your thoughts lately? Let us know!