The first week and a half of trading this month took investors on a wild ride. The Dow Jones Industrial Average, for example, posted its biggest point gain and loss back to back for the first time since 1997, according to the Wall Street Journal. Tuesday’s 273-point “Dow Dive” was reversed by Wednesday’s 275-point “Dow Wow.” But then the Dow slumped again, dropping 335 points on Thursday. Other indexes were not immune, with the Nasdaq, S&P 500 and the small-cap Russell 2000 dropping sharply during the week. A roller coaster ride to be sure, but all three major indexes are still up year to date. The Dow is up just 0.5% for the year; the S&P 500 is up 4.3% and the Nasdaq has gained 4.8% thus far.* And earnings report season has just begun, with companies like PepsiCo and Alcoa beating analysts’ estimates.
The recent selloff focused on energy companies, likely triggered by a drop in crude-oil prices and fears that global growth is slowing, particularly in Europe and China. While weaker global growth is expected to have an impact on many U.S. firms, it may have some benefits for the broader U.S. economy. The stronger dollar is putting downward pressure on commodity prices. Lower prices at the pump should boost consumer purchasing power, which would have a positive impact during the important holiday shopping period and support stronger consumer spending growth into early 2015.
Volatility is to be expected as part of a normal, healthy market. Long-term investors have faced ongoing geopolitical concerns and general nervousness over the Federal Reserve’s eventual move to raise interest rates at some point next year. “The Fed has plenty of time to decide when to begin raising short-term interest rates,” explained Raymond James Chief Economist Scott Brown. “The economic figures over the next several months should dictate that decision.” However, weaker growth in Europe and the strong dollar’s impact on inflation will likely delay the Fed’s initial hike, and increased capital inflows should keep long-term interest rates relatively low.
My advice in periods of market volatility is try to remain focused on making progress toward your long-term goals. If the recent volatility has you concerned, it's a good time to ask your advisors questions you may have about recent market events and perhaps set aside some time to review your portfolio as we head into year-end.
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The Russell 2000 Index is an unmanaged index of small cap securities which generally involve greater risks. The performance noted does not include fees or charges, which would reduce an investor’s returns. There is no assurance the trends mentioned will continue.
Market letter data and information is compiled from a variety of reputable resources, including Raymond James financial experts, such as Chief Economist Scott Brown and Chief Investment Strategist Jeff Saut. Our research also uses third-party sources, such as Federal Reserve publications, CNBC, CNNMoney, Bloomberg and Yahoo Finance. The information is then vetted through the relevant product areas, as well as compliance and editing before being distributed.
*Price returns as of October 9, 2014.