Adviser: Market returning to normal volatilityPublished 11:00pm Monday, February 3, 2014
Recent drops in the stock market, including a 326-point plunge in the Dow Jones on Monday, are likely a return to normal volatility, said a local financial adviser.
In January, stocks began to slide after posting a banner year in 2013. The Dow Jones fell 5.3; Standard & Poor’s 500 Index fell by 3.6 percent; and the Nasdaq Composite dropped 1.7 percent.
On Monday, the Dow Jones plummeted 326 points in its worst day in the past seven months. For the year, the Dow Jones is down just over 7 percent from its 2013 high. The S&P 500 is down five percent in 2014.
Kenneth Green, a financial adviser at Edward Jones, said,despite the market’s fall, indicators show the United States’ economy to be improving.
“There are a lot of good signs that the U.S. economy is doing better,” Green said. “The Federal Reserve has reduced its monthly bond purchases based on its assessment of economic growth. Consumer spending rose in December. New home sales were up 12 percent last year. House prices rose 13 percent. These are all good things for the economy.”
The beginning of 2014 has been in stark contrast to 2013. In 2013, the major stock markets posted their best year since 1997. The S&P 500 saw a 30 percent increase in 2013.
Green said that, after such a long period of growth in the market, it was inevitable that the markets would slide a little.
“The market has a 10 percent correction every three years, and we’re overdue,” Green said. “I don’t think this is necessarily the correction, though. This is more of a return to normal volatility. People became used to a year of such dramatic growth in 2013. Having a slow start in 2013 will not affect the long-term strength of the market. We actually project 2014 to be a better year than 2013.”
The cold weather and poor manufacturing reports from the U.S. and China have been blamed for the market’s decline. In addition, political unrest in emerging markets, especially Ukraine, has scared investors off. “There have been a lot of worries over slower economic growth and currency declines in several emerging markets,” Green said. “That pulled stocks lower in January despite solid earnings reports from a number of American companies. Emotions can be a driving cause in the market, too. When the market goes down, lots of retail investors, who put in their own personal, hard-owned cash, become nervous and sell.”
Green said the best things an investor can do when the market drops like this is to remain calm. “Most of the people who lost money in 2008 lost money because they sold their stocks,” Green said. “When the market drops, stay calm and collected. Consider your long-term financial goals. When stock prices drop consider it an opportunity to add quality investments to your portfolio.”
On the day, the Dow Jones closed 326 points lower, for a 2.1 percent decrease. The S&P 500 and the Nasdaq were also both off just over 2 percent.