It is difficult to know exactly what is causing this abrupt global sell-off in equities, especially in the United States and in Europe. There has been plenty of bad news since the first of this year: a third Greek bail-out that was handled sloppily, slowing profit and revenue growth in the US, the threat of rising interest rates, the slowing of GDP globally but especially in China and the emerging markets, along with a few other minor concerns. But which one was the one too much for investors to take, the one that started a global contagion of selling, the last straw?
The easy answer is all of the above, although I suspect it was a very poor manufacturing production report out of China that was made public last Thursday. Since 2009, China has been responsible for at least 50% of the world’s growth. With evidence that the Chinese economy is slowing more than investors thought, a stampede for the exits started last Thursday. The United States hasn’t had a 10% sell-off since August of 2011. This is certainly it, and feels like it could get worse. Our Federal Reserve Bank has done a good job of trying to keep the American economy from falling into a major recession since the crisis in 2008, but the real result has been that they have succeeded in inflating financial assets much more that GDP growth. What we are experiencing is the convergence of the two lines, with the stock market line coming down very quickly to be more in line with GDP line.
Longview understands and manages portfolios for less risk, primarily because we understand if we don’t lose as much of your capital as the market wants to take back in a selling rout, then we don’t have to take as much risk when the markets eventually turn up. Often we have talked about our “protect and grow” strategy. Other than our most aggressive portfolios, we had prepared client accounts for a slowing market, although not the selling tsunami we saw last Friday and Monday. To the best of our ability, we are assessing how much more we need to protect your portfolios without injuring the potential for future gains. In these turbulent times, your confidence in our ability has never been more appreciated.
Jeffrey Cedarholm is the Chief Investment Officer at Longview Financial Advisors, Inc. He is a CERTIFIED FINANCIAL PLANNER™ practitioner with a passion for investment and wealth management. Jeff can be reached via e-mail at firstname.lastname@example.org.
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