After a really nice rally this year from stocks, which more than offset the sharp decline at the end of 2018, last week U.S. stocks experienced their worst week of the year so far, ending in losses across the board. Over the 5 days until the time of this writing on Monday morning, markets are down 5%, back to levels we haven’t seen since…June. In the grand scheme of things, this is a blip, but it always feels bad when we are in the middle of a sharp decline.
What caused this? After a decent start last week based on hopes for an accommodative Fed, markets reversed and declined Wednesday following the Fed policy move, with language that was a little more tempered and hesitant to continue with further cuts than expected. Worse yet, this was coupled with the administration’s surprise announcement (via Twitter) of a 10% tariff on the $300 billion in remaining imports from China, to take effect on September 1, absent any agreements or postponements put forth before then. This would be in addition to the $250 billion of items already subject to a 25% tariff level. This new round would affect a far broader swath of consumer goods, including a larger proportion of consumer items, such as apparel and shoes. In response, over the weekend, China devalued their currency and suspended imports of U.S. agricultural products, sending the markets down further today.
As always, things like this can feel frustrating, but they can be a great time for rebalancing and also as a buying opportunity. Don’t fret! This is what long-term investing looks like.