Dubroff: What to remember during this latest market tumble
The stock market’s quick tumble from record highs to correction levels has made the average investor 10% poorer — at least on paper.
And what happens next is far from clear. But after living through a number of these cycles, here’s a bit of perspective.
• We’ve quickly gone from a rising tide of tech to a washout that strands all the boats on the beach. Many of our region’s smaller and mid-cap stocks suffered bigger losses on August 5 than the large-cap averages. Mission Produce was down over 5% and Semtech was down over 8%, to name two.
• A falling stock market doesn’t always predict a recession nor does it typically cause one. The rise in the July unemployment rate was largely due to some 430,00 people coming off the sidelines and looking for work. The economy is attracting workers and still growing jobs — hardly the signs of an imminent recession.
• Big cap tech is under a lot of pressure. The Justice Department’s victory over Google and parent Alphabet helped The Trade Desk, whose ad exchange competes with Google, eke out a small gain amidst a general meltdown. Apple plunged nearly 5% after Warren Buffett sharply cut his stake.
• Election jitters are a real phenomenon. In a bitterly divided country, investors don’t trust Kamala Harris to be a good steward of the economy and they have deep concerns about Joe Biden. The Trump-Vance team and its promise to shake the snow globe with tariffs and tax cuts, has GOP traditionalists and many Democrats on edge, too.
• There is very little place to hide — except bonds. Smaller cap stocks, a recent darling, had a terrible day. So did crypto, oil, gold and just about anything else. But bonds, an asset class that got clobbered by inflation, held their own. Which is actually the way bonds are supposed to perform.
• If bonds continue to move higher and interest rates trend lower on their own, the markets may do some of the Fed’s work for it and the calls for an emergency rate cut may fade. Lower rates will also strengthen bank balance sheets.
• If you are going to do anything other than stay the course, ask yourself this question –Is this 1987 or 2008? After the 1987 stock market crash there was no recession and the market regained its peak within a few months. In 2008, we had a banking crisis and the Great Recession and it took years for the markets to recover.
