{"id":10502,"date":"2023-08-09T15:06:00","date_gmt":"2023-08-09T15:06:00","guid":{"rendered":"https:\/\/isafespend.com\/investing\/market-update-stay-focused-on-the-long-term\/"},"modified":"2023-08-09T15:06:06","modified_gmt":"2023-08-09T15:06:06","slug":"market-update-stay-focused-on-the-long-term","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=10502","title":{"rendered":"Market Update: Stay Focused on the Long-Term"},"content":{"rendered":"
\n

<\/span><\/p>\n

We would like to take this opportunity to share with you some of our observations and perspective regarding recent market movement. The long anticipated market correction has finally occurred.\u00a0 For the first time since October 2011, the S&P 500 Index experienced a pullback of over 10%.\u00a0 It was an amazing run, and at over 1400 days, it was the 3rd longest streak in history without a 10% correction.<\/span><\/p>\n

In 2015, Wall Street has faced a rotating wall of worry.\u00a0 The year started with investors debating when the Federal Reserve would begin raising interest rates.\u00a0 In the spring, the focus turned to the nonstop drama in Greece and the potential of a Greek exit from the Euro.\u00a0 This summer, the attention shifted to China, as the world\u2019s second largest economy was showing signs of stalling.\u00a0 Ultimately, the worries about Greece dissipated, but the concerns about the timing and impact of a U.S. rate hike resurfaced at the same time a sharp decline in China\u2019s equity markets ignited fears about the country\u2019s economic health.\u00a0 That combination, involving the world\u2019s two largest economies, sent traders to the sidelines, resulting in the S&P 500 entering correction territory for the first time in almost four years.<\/span><\/p>\n

Stanley Fischer, Vice Chairman of the Federal Reserve said the following at a speech on May 25, 2015 in regards to raising interest rates: \u201cWhat we are thinking about is raising the interest rate from zero, which is an ultra-expansionary monetary policy to a quarter percent, which is an extremely expansionary monetary policy. This will be a gradual process.”\u00a0 He could not be any clearer in his message.\u00a0 In a sense, they are going from an open bar easy monetary policy to a ten drink minimum.\u00a0 Here\u2019s our Nike style advice to the Federal Reserve: just do it!\u00a0 Rip the band-aid off and get it over with.\u00a0We believe Wall Street has been overreacting; a move from zero to .25% is not the start of a tightening cycle designed to slow down the economy.\u00a0 The U.S. economy is strong enough to withstand a minimal .25% move off zero.\u00a0 The endless debate around a slight rate increase has become an unnecessary distraction that needs to end.<\/span><\/p>\n

The Chinese situation is more complicated.\u00a0 China is in the midst of shifting from an export led high growth economy to a slower growing consumption based economy that will rely more on private enterprise and domestic consumption.\u00a0\u00a0 This will be a difficult transition, but one that has a lot of potential. In the U.S., domestic consumption represents 70% of our economy while in China, domestic consumption represents only 35% of their economy leaving a lot of room for growth.\u00a0 While there is no doubt that China\u2019s economy is slowing, there is an active debate as to the extent of the slowdown.\u00a0 The bullish camp believes that China\u2019s economy, while slowing from its historical growth rate, is still growing at an enviable three plus percent rate.\u00a0 The bearish camp believes China is a recession bound house of cards and that their problems indicate that global growth is slowing.\u00a0 Our stance is it\u2019s too early to make a definitive call on China and expect the news out of the country will continue to disrupt the global markets.<\/span><\/p>\n

What does all this mean for investors? \u00a0This will take time to play out so investors need to be patient.\u00a0 While we have enjoyed a nice rebound off of last Tuesday\u2019s lows, we expect the daily dramatic price swings to continue until we get more clarity on the direction of interest rates in the U.S. and news out of China that shows their economy is stabilizing.<\/span><\/p>\n

<\/p>\n

There continues to be a lot of positives that support the case for owning equities for the long-term.<\/span><\/p>\n