Stocks Sell Off 3%; Time to Have Your Plan in Place

It was a particularly nasty day Wednesday for the U.S. stock market. The selling started off from the get go at 9:30 a.m. on the opening, and continued into the close at 4:00 PM.

The reasons that could be used for the selling today include the recent march higher in interest rates, the uncertainty of the quarterly earnings reports to begin flooding out next week, the effect of the trade tariffs with China – to name a few. At the end of the day, sellers outnumbered buyers 9 to 1.

The popular Dow Jones Industrials fell around 830 point or 3%, the S&P 500 fell 3.3%, while the Nasdaq Composite shed 4%. Ninety percent of the trading volume was down trades. The Dow Jones stood at the 800 level when I started in this business, many moons ago !

The best performing sector, Utilities fell about ½ percent today, and very short term bond funds were break-even to up about 1/5^th percent. All 11 S&P sectors fell some to degree Wednesday. Gold rose $4 an ounce to $1,194 the ounce, so it did not provide much of a cushion; at least not yet.

We’ve enjoyed some nice gains the past few months in Technology and the Health Care sectors. They are ahead year-to-date 13% and 11% respectively after today’s sell-off. Just four sectors are losers this year thus far: Financials, Real Estate, Consumer Staples and Materials.

Before panic sets in, consider where we have come this year, on top of the nice gains of 2017 – up 25% - the Dow is back to where it stood in mid-August, while the S&P 500 is equal to its mid-July level. Generally the last two months of 4-6 % gains in these two indices has been erased thus far in October. For a long term investor, that should not be a concern…BUT, you have to assess what you own and how tough a stomach you have to hold stocks with losses – or perhaps gains that are eroding. For that, you need to do some math. Grab that calculator, or slide-rule. 

We suggest, as we’ve stated here regularly, to use a stop price at which you will sell. Your broker or advisor should be talking this up as part of your portfolio strategy. 

For instance, if you bought a stock or mutual fund for $100, you would sell it at $92 for an 8% loss if you used an 8% stop price. If you have further questions on this, e-mail me for a look-see on how to set this up. I offer free consultations.

Interestingly, on a historical basis, the last stock market bear market – the 2007 – 2009 financial crises, started in early October 2007; the 9^th of October to be exact. The Dow stood at 14,164 that day, and fell to 6,547 by March 2009, a 53% loss. It would take another 4 years, to March 2013, for the Dow to break above the 2007 high. That’s a lot of time to fret and second guess things.

So I recommend to have a plan, enact it, and then follow it. Take your emotions out of the equation.

Thanks for reading friends.