With a fresh bout of turmoil in the markets, here’s a message for investors: buckle up and hang on.
By the numbers: Take a step back from the Dow Jones Industrial Average’s 830-point drubbing on Wednesday, and it’s apparent the swift selloff was a long time coming. Pin the blame on President Trump calling the Federal Reserve “crazy” or the quick rise in 10-year yields over the last week. Whatever the trigger that sent the market reeling Wednesday (and again on Thursday), Wall Street is being beat with an ugly stick.
The S&P 500 (^GSPC) is now down 4.9% from its recent high reached on Sept. 20. Formerly hot tech names such as Amazon, Netflix, and Nvidia are all down 10% since Oct. 1. The Dow Transportation Average (^DJT), often viewed as a tell on the global economy, has dropped about 10% in the last month.
Perhaps the unsettling thing for investors is that the latest bout of volatility lacks that aforementioned trigger. That could make it harder for investors to know when they can dip their toes back into stocks without too much fear of having their faces ripped off.
“Market disruption reminds us of a fundamental truth of investing. Investors must make a distinction between those developments that threaten to impair sentiment, and therefore price; and those that threaten to impair fundamentals, and therefore value,” opines Brown Brothers Harriman chief investment strategist Scott Clemons.
What we are hearing: Since the selloff lacks a precise reason, many veteran market watchers Yahoo Finance spoke with say the unwind may extend for another week or so. The collective advice from is to focus on differentiating oneself from a being a trader and an investor. And, above all else, don’t panic as the U.S. economy is far from being in even a mild recession.
“For a trader, we would say that they should recognize that this is likely to be a process with large price swings,” Suntrust chief market strategist Keith Lerner tells Yahoo Finance. Lerner says investors should not be making wholesale changes to their portfolio at the moment.
“Investors should understand that market setbacks are the admission price to the stock market,” he says.
Scott Clemons, chief investment strategist at Brown Brothers Harriman, agrees. “Investors should look to rebalance their portfolios to whatever strategic allocation is right for their return needs and risk tolerance, and take advantage of stocks selling at ‘sale’ prices,” Clemons says. Good buying opportunities have opened up in consumer staples.
The bottom line: What’s happening to the markets had to happen. When leadership sectors such as semiconductors and the Dow transports begin to lag as they did in September, while the broad market continues to trek higher, it’s very often a red flag that a market adjustment could be lurking.
Recall that the S&P 500 had just gone 74 days without so much as a 1% pullback, the third-longest period of this bull market. Further Keep in mind that since this bull market began there have been 16 pullbacks of 5% or more.
So as the pros say, realize this is normal, hang in there, and be ready to get back into the game.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi