Daily Local News (West Chester, PA)
Area experts: Market correction expected
Strength of economy led to recent pullback, they say
It has been a busy week on Wall Street as the stock market took a steep tumble on Monday, with the Dow ending down 1,175 points — its worst day in more than six years.
Over the last two days, stocks have recovered some of their recent losses but remain beneath the record highs they set last month. After a slightly lower open Wednesday, stocks recovered within the first few minutes of trading, only to slip and briefly turn lower by mid-afternoon. The Dow ended the day down 19 points at 24,893.
Three area financial advisors said Wednesday this week’s market correction was expected.
“Most of my clients were expecting this and most were anticipating it. Last year was such a fabulously good year with little volatility. It can’t go up forever and it’s healthy to have some declines in the market when we didn’t have many last year,” said Peter K. Hoover, CEO, Hoover Financial Advisors of Malvern. “In the weeks and maybe months prior to this — our clients asked, ‘when will
the other shoe drop.’”
“With the market having such a fantastic 2017 and beginning of 2018 and with the bull market running for so long without a major correction, it was bound for a correction. All the talking heads were saying a correction was coming, but we didn’t know when,” added Thomas A. Kalejta, president of Kelejta Financial Management in Trappe and Lower Pottsgrove, and published author.
“It’s healthy. “We were going up, up, up. Now it happened and now we’re moving on. It was healthy to happen and it had to happen sometime,” added Bonnie Thompson, financial advisor for Edward Jones in Gilbertsville. “If you set expectations with clients and review all year, rebalance and keep a diversified portfolio, you are positioned to weather the ups and downs.”
The current bull market is set to turn nine years old in about a month. As of Jan. 26, the date of the last market record, the S&P 500 had more than quadrupled over that time. The market had made big gains over the last year, and many experts felt stocks were overdue for a slump.
Stocks began to fall Friday after U.S. jobs data showed wages growing more than anticipated. If that continues, it could stoke inflation and prompt the Federal Reserve to raise interest rates more and more quickly than previously expected.
All three advisors agree that the market fluctuations this week are not an indication that the economy is worsening.
“The way I look at it — good news caused this — not bad,” Hoover said. “It’s not a sign of weakness, but rather a sign of strength.
“The fundamentals of our economy didn’t change overnight, there was nothing bad that precipitated the correction — just strength. It’s kind of odd, but strength caused it to go up last year. Now that strength caused it to take a step back.”
“It’s kind of a catch-22 relationship between a healthy economy and the stock market. But this is not a warning sign long term — it’s a sign of a good healthy economy,” Kalejta said, adding that most of the economic indicators are still positive.
“Most economies around the world are still growing. We have synchronized global economic expansion for the first time in a long time,” he said, adding that unemployment is low, the housing market is good and productivity is good.
“The source of this pullback isn’t anything we think is bad,” Thompson said. “There are two drivers behind this — rising rates and pent up selling. There is actually good news behind this market move — a 17-year low in unemployment and job growth.” She added that is has been more than 400 days since the last five percent pullback.
Hoover explained that the S&P 500 Index through Tuesday night’s close was up 19.93 percent on total return in one year.
“We’re double digit, way up on percentages, even with the decline,” he said.
Both Hoover and Kalejta have told clients to “stay the course,” when it comes to their investments.
“We’re not changing anything at this point,” Hoover said.
“I tell them that if they are true to their goals, time horizon and risk profile — stay with the plan,” Kalejta said.
Kalejta likened the correction to the tide in the ocean. “Even when the waves are coming in they have to recede a little bit. The waves come in and out, but overall the tide still coming in.”
Thompson reminds clients that, “we have seen this knee jerk reaction before. I tell them to keep the pullback in perspective. Over the short term, markets can be led by headlines and emotions.”