It's Back...Market Volatility That Is

If you thought the market was going to keep climbing steadily without any hiccups, I am sad to say that’s what we call a pipe dream. We all wish this dream could be a reality, but the reality is market volatility is normal and what we have experienced in the market since 2011 is not normal.

At the close of the market last week, the S&P 500 was down 10% off of its high in May. The good news is: this is good news! If you have come in for a visit recently, you know we have been preparing for a market correction and are actually welcoming it. For a long time we have felt that the market was getting overpriced. In fact, despite the minor corrections to-date, we still believe it is still overpriced. We really consider a correction of 15-20% would be healthy at this point. Your gut reaction may be “What?20%?" But yes, you read it right: 20%. Think of it this way--imagine you just bought a brand new muscle car. How long could you drive it at top speed without stopping before the engine blew up? You have to take your foot off the pedal and decelerate occasionally or you won't be able to enjoy the rumbling for long. This holds true if you are in the 24 Hours of Lemans. Though perhaps an odd analogy, this is the same way the market works. We have been going at top speed for way more than 24 hours in market time. It is time to take the foot of the pedal and have some idle time.

All of the volatility in the market today is pure emotion. China devalued their currency in an effort to make their goods more appealing, but ended up sending the wrong signal – that of a weakening economy. Which in turn has taken the wind out of an already beat up commodity market. Add to this the unresolved problems in Greece... and the Fed hinting at raising rates on a still banged up U.S. economy (which probably won't happen after this summer sting)… and you get a lot of uneasiness in the US markets.
Another factor is very low volume in the markets right now, which basically means that there is simply not a lot of activity. Traders are still on vacation, so the current market is swinging on emotion.

For the past several months we have been positioning portfolios for a pullback. We have limited our dollar exposure and relaxed our commodity exposure on the strategic side. We have stayed diversified and increased our tactical approach, which limits normal market volatility, but positions us with buying opportunity when the market goes down. Needless to say, we are not in a panic. This doesn't mean we won't experience the volatility or downside. It just means we are in a position to use it as an opportunity to buy fear as Warren Buffet says.

The important thing to remember is volatility and corrections are natural and healthy. It is what has made the markets work for more than 100 years. We just have to remember to keep our emotions out of our investing decisions and stick with our disciplines. If we can do that, we will weather this storm.

At the end of the day, what matters most is you "living Life on purpose." And remember that we are here. Take the sleep test..."If you are worried and not sleeping, call us!" Nothing is worth stress or the cost of your health. You have options and together we will figure it out.

God bless!
Jim, Aaron, Angela, and Bret