The Learning Centre:
What Educators investors should know about recent market changes
Why a change in the market shouldn’t mean a change in your plans.
October 2018 has been a volatile month for the stock market. In fact, when the market dropped October 23 it was the 12th time it had done so in 14 days. In times like these, education members who are counting on their investments to help them save for a 4 over 5, or for longer term goals like retirement, may be feeling a little nervous.
There are many reasons why investors should pause before reacting to a market downturn.
First, it’s important to understand that selloffs and corrections are normal for the stock market. According to investment firm Deutsch Bank, the stock market has a correction about once a year. Economies have their ups and downs –the markets that follow them will, too.
Second, the market correction that follows a selloff generally lasts for a shorter period of time than a bull market.
And third, while corrections may be inevitable, they are not predictable. Possible causes are many, and varied. The Great Recession was caused by the housing bubble bursting … but few people knew what subprime mortgages would do in 2006 or 2007.
The selloffs that have occurred in October could have had many causes, including:
- Concern that an increase in Treasury yields would result in higher interest rates in general
- Concern that the Federal Reserve may shift to an overly aggressive rate hike pace
- A great decline in global Tech stocks caused by tariff risks, regulatory threats, above-average valuations, and peak activity in bellwether semiconductors
- The suggestion that the U.S.-China trade dispute, and tensions between the two countries, will intensify
- The closing economic momentum in China
- The possibility that margin pressure, tariff angst, and the strong dollar could negatively impact the U.S. Q3 earnings season
- The transition to a slower (more normal) U.S. corporate earnings growth rate in 2019.
In addition, U.S. equities are often volatile in October and sometimes during midterm election years (usually rallying after the election.)
What Educators investors should expect in the next little while
Overall, we believe that the market will steady if Treasury yields settle, Tech stocks stabilize, and with signs that U.S. Q3 earnings will be respectable overall.
If you’re investing for long term goals, such as your retirement, rest easy.
A new RBC report provides information that the U.S. equities in your portfolio — which are there to help you achieve your long-term goals — should be given the benefit of the doubt as long as the economic, credit, and earning cycles remain favorable for stocks.
The report also suggests that U.S. economic expansion will persist for the next 12 months. S&P 500 earnings growth will slow from its unusual pace in 2018 (over 20% year over year), but will still be average to slightly-above-average in 2019.
Overall, the expectation is that the 10-year yield will stabilize and find a new, 30 basis points trading range of between 3.10% and 3.40%. Treasury yields are expected to slow, and economic growth to be more moderate in 2019.
Impact of the selloff on world markets
The Canadian market has lagged behind the U.S. market throughout 2018. During the recent selloff, utilities outperformed on a relative basis, as risk appetite diminished and investors rotated into defensive sectors.
European stocks fell to their lowest levels since January 2017. Among Tech stocks, Semiconductors were the worst hit, Luxury Goods were also hit.
Asian equities saw a sharp selloff, and the biggest losses were in Taiwan and mainland China stocks. The Shenzhen and Shanghai Composites fell by 6.0% and 5.2%, respectively.
Japan’s TOPIX declined by 3.5%.
Keep your eye on your goals, make no quick decisions, and when in doubt, speak with your Educators Financial Planner.
In times of market volatility, it’s important to remember that your investment goals have not changed. Acting on impulse is never the best decision. Speak with an experienced Financial Advisor who understands your needs, and who has the specialized training to help you make the decisions that are right for you.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy. Commissions, trailing commissions, management fees, and expenses mall all be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed. Their values change frequently and past performance may not be repeated.