Stocks are plung­ing. Here’s what you can do

Don’t over-re­act, but pre­pare for the long term

The Arizona Republic - - Life - Adam Shell

U.S. stocks suf­fered steep de­clines but closed well off their lows Thurs­day af­ter the ar­rest of a top Chi­nese tech ex­ec­u­tive fanned trade war wor­ries and a swoon in oil prices wors­ened fears about the health of the global econ­omy.

In­vestors hop­ing for sta­bil­ity af­ter the Dow Jones in­dus­trial av­er­age's nearly 800-point fall two days ago in­stead were taken on a wild ride. They watched the gauge of blue-chip stocks re­treat as much as 784 points, or 3.1 per­cent, on Thurs­day, be­fore closing down just 79 points, or 0.3 per­cent, at 24,948. The Dow is still up about 1 per­cent this year.

Mar­ket volatil­ity and wild price swings have re­turned to Wall Street this year, spook­ing in­vestors who still have bad me­mories of the 2008-09 fi­nan­cial cri­sis that wiped out more than half of the stock mar­ket's value.

The broad Stan­dard & Poor's 500 stock in­dex, which slid 0.2 per­cent Thurs­day, has closed up or down more than 2 per­cent on 14 trad­ing days in 2018, the most in seven years, ac­cord­ing to data from S&P Dow Jones In­dices. Last year, there wasn't a sin­gle day with a move of 2 per­cent or more.

"Volatil­ity is back be­cause in­vestors have a lot of ques­tions: Will the trade war es­ca­late? Will the Fed hike rates too far? Will these fac­tors tip the econ­omy into re­ces­sion?" says Alan Skrainka, chief in­vest­ment of­fi­cer at Cor­ner­stone Wealth Man­age­ment.

3 things driv­ing stocks lower

1. Trade war angst. The ini­tial op­ti­mism fol­low­ing the trade fight cease­fire be­tween the U.S. and China at the G-20 sum­mit this past week­end has faded. There's ris­ing skep­ti­cism about whether a deal to re­solve the fight over tar­iffs, as well as other dis­putes, can be reached dur­ing the 90-day pause.

The ar­rest of Meng Wanzhou, the chief fi­nan­cial of­fi­cer and founder's daugh­ter at Huawei, China's largest telecom­mu­ni­ca­tions equip­ment maker, com­pli­cated mat­ters. The episode raises wor­ries of more harm to the trade truce be­tween the world's two largest economies, Jasper Lawler, head of re­search at Lon­don Cap­i­tal Group, told

USA TO­DAY via email. 2. Fear of ris­ing rates and a re­ces­sion. The nearly 10-year-old bull mar­ket has been fu­eled by low bor­row­ing costs. Now, Wall Street fears that the Fed­eral Re­serve will hike rates too high and too fast and cause a re­ces­sion. Just a week af­ter in­vestors breathed a sigh of re­lief when Fed chief Jerome Pow­ell hinted that the Fed will slow its pace of rate in­creases next year, an ob­scure shift in the bond mar­ket that sig­nals a pos­si­ble eco­nomic con­trac­tion spooked in­vestors anew this week.

The neg­a­tive fall­out from the U.S.China trade dis­pute is an­other eco­nomic ob­sta­cle. On­go­ing trade ten­sions are caus­ing a lot of un­cer­tainty and are ex­ac­er­bat­ing wor­ries about slow­ing growth, as tar­iffs re­sult in higher prices for goods, hurt­ing sales and earn­ings of U.S. com­pa­nies. 3. Sink­ing oil prices. U.S.-pro­duced crude has been in free-fall for weeks due to a sup­ply gut and wan­ing de­mand. But sink­ing oil prices also raise con­cerns about an eco­nomic slow­down. That's why Wall Street was closely watch­ing Thurs­day's OPEC meet­ing to see if the oil car­tel could agree on a daily pro­duc­tion cut to help sta­bi­lize prices. OPEC, how­ever, didn't an­nounce its de­ci­sion.

The price of U.S.-pro­duced crude was down 2.3 per­cent Thurs­day at $51.70 a bar­rel, com­pared with its re­cent high of $76 in early Oc­to­ber. Lower oil prices hurts the earn­ings of U.S. en­ergy com­pa­nies, which drags their stock prices down.

3 things an in­vestor should do

1. Avoid over-re­act­ing. No­body can control where stock prices go. In­stead, "fo­cus on what you can control," says Skrainka. His short list? Own qual­ity stocks. Di­ver­sify your in­vest­ments. Control your emo­tions. And main­tain a long-term per­spec­tive.

2. Pre­pare for a bear mar­ket. Tak­ing a page from War­ren Buf­fett, who says only buy stocks you wouldn't mind own­ing if the stock mar­ket shut down, Skrainka says the best way to sur­vive a nasty down­turn is "by only own­ing in­vest­ments to­day that you wouldn’t

mind own­ing in a bear mar­ket to­mor­row." In short, don't own risky stuff that will keep you up at night.

3. Don't fo­cus on short-term. "In spite of a dis­ap­point­ing year, a di­ver­si­fied port­fo­lio has per­formed quite well over the past five years," Skrainka re­minds in­vestors. A port­fo­lio with 53 per­cent in­vested in U.S. stocks, 17 per­cent in for­eign stocks and 30 per­cent in in­ter­me­di­ate bonds has posted a loss of 1.8 per­cent this year. But that same port­fo­lio, he notes, has pro­vided a re­turn of 9.8 per­cent an­nu­ally over the past 10 years.

At the mar­ket close Thurs­day, the re­cent dam­age to the ma­jor U.S. stock in­dexes was start­ing to add up. The tech­nol­ogy-stock-packed Nas­daq com­pos­ite is down 11.3 per­cent from its late-Au­gust peak, putting it deeply into so-called "cor­rec­tion" ter­ri­tory, de­fined as a drop of 10 per­cent or more from a prior high. The Dow is 7 per­cent off its record close, and the broad Stan­dard & Poor's 500 closed 8 per­cent be­low its peak. The S&P 500 has al­ready suf­fered two cor­rec­tions this year, one in Fe­bru­ary and an­other in late Novem­ber.


Volatil­ity and price swings have re­turned to the New York Stock Ex­change, wor­ry­ing in­vestors.

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