Overall, stocks were up slightly last week. Our recession watch indicators are still green, indicating no imminent risk of recession.
If you’re following market news, you may have read a headline that said “The Dow plummeted 800 points”, or something along those lines. That sounds pretty scary. I’d like to give you a little history, and perspective. First, what is the Dow? That’s the Dow Jones Industrial Average, an index of 30 US companies. The Dow comes from Charles Dow, the original publisher of the Wall Street Journal, and Edward Jones, his business partner and a statistician. Unlike the S&P 500, or other stock market indexes, the Dow is not weighted by market capitalization (or size of the company). It’s also not an average – so they don’t take the 30 stock prices, add them up and divide by thirty. To make the index useful over time, they divide the total of the 30 stock prices by a factor which changes every time there is a stock split or stock dividend. So what used to be 30 is now .1474. When it was first published in the 1880’s, the Dow was 62.76. On Friday, the Dow closed at (Insert closing value).
Some of you may remember October 19, 1987 – Black Monday. The Dow dropped just over 22%, the largest single-day drop in stock market history. That was a 508 point drop. Which means hearing or reading that the Dow plummeted 800 points sounds terrifying. Until you realize that an 800 point drop in the Dow today is just over a 3% decrease. The Dow is still up over 10% year-to-date. These drops are normal and do not mean you should panic, or sell everything and go to cash.
So what do you do? First, remember that there is no such thing as a short-term investment. Investing in stocks is a long-term proposition. Second, take emotion out of it. Working with a professional helps. And if all else fails, remember the market can be like a roller coaster. Close your eyes, hold on to the rail in front of you, and ignore that your stomach is somewhere above your head.
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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.