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2019 Stock Market Volatility

From the Office of the CIO

In August, for the second time in 2019, the U.S. and world stock markets experienced a sudden decline of about 6%. While not as jarring as the nearly 20% decline in late December last year, investor anxiety has been high for several months.

Root Cause
Market observers indicate that world politics may be contributing to this anxiety. Of course, the U.S.-China trade dispute has taken center stage. But other world events are also meaningful.

Britain's moderate leader, Theresa May, resigned after Parliament did not support her Brexit plans. May was replaced by Boris Johnson, a conservative populist leader. Japan and South Korea are having their own trade spat. Political unrest in Hong Kong, which featured mass protests and airport closures, has captured the attention of the world. German manufacturing, according to business polling, is in a "freefall," largely due to fewer exports to China and pressure on the auto industry resulting from a change in carbon emissions standards. Iran has seized ships in important trading routes. North Korea is again testing missiles. The U.S. President regularly criticizes the actions of the U.S. independent central bank, the Federal Reserve.

Despite these seemingly disruptive world events, the movement in the stock market is normal. Significant market declines happen cyclically, and investors should expect periodic market retreats similar to what they have observed this year. Stocks experience an average decline of about 11% from their highest peak to their lowest point during any year. For perspective, an 11% decline today would translate to a nearly 3,000-point drop in the Dow Jones Industrial Average.

Markets must be managed for the long-term
No one can predict market increases or decreases exactly. A change in direction could be occurring while you are reading this; it could be next week, next month, a year from now or sometime farther in the future. History has shown that investors who panic by dumping their stock holdings will often return to the markets too late to benefit when the markets rebound—and would have been significantly better off had they done nothing. Stock market declines can be healthy, and they present opportunities for long-term investors.

Wespath manages through a long-term, disciplined strategy
Wespath remains focused on the long term. We adhere to a consistent, long-term and disciplined strategy for managing a diversified investment program. We continue following this strategy in both up markets and down markets, and it has successfully stood the test of time. We are confident that our approach is prudent and will continue to faithfully serve the retirement needs of our participants.

From the October 2019 issue of Hark!