Market Volatility-What CFG Wants You To Know!

Craig Watkins |

We would like to take a moment of your time to educate and inform you of some of the reasons for the most recent volatility in the market. 

The market has seen quite a lot of volatility this last week.  We’ll start with Coronavirus-yes, we have been inundated with information regarding Coronavirus.  Along with the fears of the virus itself, are the global market fears.  People are worried what this will mean to the global trade market and frantically pulling themselves out of positions.  China is responsible for about a third of all gross exports.  Most of us use products from China in one way or another every day.  The longer companies are closed in China under precautions and quarantines, the longer production is affected in the global supply chain. 

In addition to the Coronavirus, you have an increasing number of companies utilizing market trending trading and algorithms.  This means when there are sharp dips in the market, trending models call for large scale rebalancing of portfolios across the market.  Up to 90% of equity future trades and 80% of cash equity trades happen without any human interaction at all.  This means abrupt and large rebalancing can happen lightning fast. 

What does this mean?  How can you react?

There are still many questions.  How long will this disruption to the global supply chains last?  When will the virus be contained?  These and other questions are not easily answered right now.  Each day brings new information globally.  Currently, both manufacturing and service sectors are feeling the impact with the uncertainty for goods and traveling throughout the world.  The Federal Reserve may cut interest rates sooner than the market expects.  These are points for additional market changing information, which will undoubtedly shift in the coming weeks.  

There will be more rebalancing.  There will be more market dips.  The virus has spread throughout the world and countries are still calculating the virus’s impact country to country and city to city.  Here at CFG, we know the market could still see corrections and with the current bull market we are in, we believe the market will continue to adjust.  How can we react?  We believe in monitoring the market to calculate when rebalancing would make sense for certain portfolios.  There seems to be a trend for U.S. based equities over developed or emerging market equities.  We are also monitoring the risk of an economic recession.  Information is coming to us all at a rapid pace and changing daily.  We are concentrating on the economic data coming into us from the economy as a whole and not just concentrating on the information coming to us from the media and news outlets.  During times of volatility, it is important to remember, diversification is key and rash and emotional decisions do not enhance the long-term portfolio for any investor.

We have seen volatility before.  We know more changes are in store as new information comes to light.  Here at CFG, we implore you to become educated and keep your focus on the long-term, diversified picture.  It’s important to remember, as a CFG client you have a plan and we have planned for situations such as this, when we created your retirement plan.  We will continue to monitor and update you as conditions deem appropriate for further action and communication.  Please enjoy this video for further market update information!  We invite you to contact us to discuss your specific financial situation further with us.