The market has fluctuated dramatically in recent weeks and we’ve seen much more down than up. What is causing this? Is it all about the coronavirus? Should we be concerned or do something different with our portfolios?
(Click the featured times below to jump forward in the episode)
A lot of people are concerned about the recent market volatility, especially in response to the coronavirus. We’ve seen multiple days of negative returns in the market. The volatility is extreme right now. The worst time to do something with your portfolio is in a knee-jerk reaction. So, what should you do if you’re nervous?
On today’s episode of Cover Your Assets KC, David will talk through the three key reasons why stocks are down 19 percent to give you a better understanding of what’s happening and what you should do.
The first cause of stock downturn is economic uncertainty. Ultimately, we don’t know what is going to happen. There is a disruption in the supply chain. Even with products produced primarily in the USA, if there’s one component from China for the product, there is likely going to be a slowdown in the process. On the flipside, an oil trade war added more uncertainty by ramping up production, causing prices to go down significantly.
Another impact on the stock market is the current political uncertainty as we face an election year. Trying to figure out what the tax situation is going to look like next year based on who is elected could be dramatically different or it could stay the same.
Finally, a more difficult reason to understand yet extremely important factor is the excessive leverage on the part of big banks, hedge fund managers, and private money managers. David unpacks what this looks like and why it happens, causing major swings in the market. When the market turns around quickly, that can cause panicked sellers.
What should you do? In short, go back to your plan. Is your financial plan still on track? We’ll talk about this in more detail next week, but you need to see if your plan is still on track instead of making an emotional decision. If you don’t have a plan, make sure you know what you have, what your living expenses entail, and then get a rational review of your financial picture.
Listen to the entire episode or click on the timestamps below to hear more about the reasons behind the stock market volatility.
[0:41] – People are worried about market volatility.
[4:46] – Reason #1: The coronavirus has caused economic uncertainty.
[6:57] – An oil trade war added to the economic uncertainty.
[8:31] – Reason #2: Political uncertainty is occurring with the upcoming election.
[10:39] – Reason #3: Excessive leverage
[15:36] – What do you do if you’re nervous?
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