FORMULAFOLIO INVESTMENTS: Stocks post worst week since March on rising interest rate fears

FormulaFolio Investments issued the following announcement on Oct. 15.

Stocks were sharply negative, marking the largest weekly loss for major indices since March.

Global stock markets plunged on Wednesday and Thursday as investors fled riskier asset classes and flocked to safe-haven investments. Over the two-day period, major US stock indices dropped over 5%. While there did not seem to be a single cause for the sell-off, it appears rising interest rates weighed heavily on investor sentiment. Concerns that higher rates may stifle economic growth intensified as the 10-year Treasury Yield reached as high as 3.26% before finishing the week lower. With the sharp mid-week drop, the CBOE Volatility Index, a widely followed Index measuring the expected volatility of the S&P 500, spiked 43% higher.

However, it is important to keep the past week in perspective. Since the current bull market began in March 2009, there have been 26 separate occasions where markets have experienced a 5% or larger pullback, with five of these turning into 10% corrections. Furthermore, stock market volatility is more normal than unusual. Daily market drops of 2% or more are not uncommon, happening 76 total times since the beginning of this bull market (with nine such occurrences so far in 2018).

While the past week was unnerving, fundamental data remains mostly positive as corporate earnings are strong and the unemployment rate is at a multi-decade low. Interest rates are still relatively low by historical comparisons as well (the 10-year Treasury Yield is currently at 3.15% compared to the average of 6.20% since 1962), illustrating there could still be room for gradually rising rates before reaching a level that would halt economic expansion.

The prospects for the remainder of 2018 are still somewhat positive for global asset growth despite the past week, but many experts believe volatility will remain prevalent in upcoming months as trade negotiations are discussed further and interest rates continue to gradually rise. While US stocks have outperformed most other investment alternatives so far this year, it is important to remember to include a broad range of asset classes in your portfolio. While short-term trends and market noise can make it tempting to make knee-jerk decisions, as investors we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can help reduce market noise and increase the odds of a successful outcome over time.

Original source can be found here.

Source: FormulaFolio Investments 

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