What’s the latest in the market this week? Big changes are happening! Watch this video to learn more about the current status of this volatile market and the effects it could have on your investments.
Today, I want to talk about the stock market. It’s been crazy. This is the most volatile stock market we’ve had since 2008. In fact, October of this year was the worse October for the NASDAQ technology stocks since 2008 October. So you’ve got to pay attention kind of where we’ve been and where we’re at today.
Markets been up, bull market for 10 years. Since 2009, the bottom of March ‘09 til today, into November, the longest bull market ever. This is the second most expensive bull market ever. Now in and of itself, those are not necessarily, they’re problems but the most pressing problems are two things: 1) China is a big deal. But more importantly, the biggest tell of markets when you start worrying about recessions and bear markets, like we had in ‘08 and 2000, is interest rates. When the Federal Reserve start raising interest rates, you have to watch out.
Now, rates have been rising for about three years. We’ll talk about that. But let me go back in time. I call it “deja vu all over again” when I give talks. And from 2003 to 2007, rates were at 1%. The Federal funds rate was at 1% in December of 2003 and went up to 5-1/4% in December of 2007. Okay? So, basically, that was a 3-1/2 year time frame where rates were rising. Now the Federal Reserve raises interest rates when the economy is doing well.
Let’s go back to 2007 again. In 2007, the unemployment rate was 5%, which historically is very low. Today unemployment is around 3.7 – 5% is excellent. Unemployment was at 5%, you also had inflation was low, around 2%. So we have a lot of similarities today. Now the market lost 55% from 2007 to 2009, March of ‘09. So where are we at today?
Today, rates started going up in July 2016. Federal Fund rates around the time when we started raising rates was about 25 basis points or 1/4%. Today with the December rate hike, it is estimated rates will be around 2-1/2 to 3%. Here are the similarities that are very, very important to understand. It took about three years for rates to rise from 2003-2007. It’s been about 3 years since we started raising rates from 2016 going into 2019. We have unemployment, which is 3.7%. It was 5% in ‘07. You have tame inflation. The market fell in 2008 and 2009 55%. The question is where do we go from here?
The scary part is people don’t realize that when markets get overvalued like this, especially like technology or financials were in the 2008 Financial Crisis, not only do you have bigger opportunities or problems with losses in the markets but if you over own sector like technology – if notice Apples down over 20%, Intervida lost 50% in a couple of weeks, like a week. Intervida I think is the 7th largest stock in the S&P. I mean you’ve seen Amazon just get demolished. So you got to be careful. A lot of you that I see own these big, high-flying names and they are starting to panic. And you should. You should worry about it.
So right now, as I speak, the S&P 500, the Dow was down 1500 points, 1400 points in two days. That’s a problem. When you have this kind of volatility you have to be careful. And so with the market the way it is today, I say the market has changed structurally. The kind of moves in the market have not been this bad since ‘08.
So the point is what do you do about this? I would recommend a minimum, you evaluate the portfolio you have. Make sure that you’re not taking up more risk than you think. Unfortunately, you’re taking more risk than you think. If your own adviser, or if you have an adviser, I would re-evaluate your portfolio.
One of the things that we do for clients, perspective clients, is we will do a complimentary second opinion and look at the fees you are paying. Specifically the risk you’re taking. So today is not a time to be brave. Now, I would say markets fall from tops not bottoms. So when everything is rosy and great, that’s when you want to start looking at how do I re-evaluate, re-balance my portfolio.
So these kind of things I can help you with. Call our office at (858) 597-1966 for a complimentary Second Opinion! See you next time and thanks for listening.