So, one month ago I wrote this article, calling for a drop which didn’t materialize at the time, but instead happened two weeks later. Volatility has increased dramatically over the last few days thanks to liquidity concerns coming out of China, and the S&P 500 is down over 5% total over the last 5 days. Is this a reason to panic? No. Reason to rebalance? It’s worth looking at, but if you have already rebalanced your own non-managed account(s) in the last 3-6 months, there may not be much change in your portfolio. As of right now, the market is sitting exactly where it had grown to just 2 months ago in late April. So while this feels like a big drop in the short term, this is really nothing in the long term. In fact, if the market drops another 5% from here, we’ll be right back to where we were in January. Hardly worth losing sleep over, as we do expect drops like this periodically in order to maintain the health of the market.
What are we looking for next? It will be interesting to see how China moves to shore up these problems, and how hard the impact will be on emerging markets (such as Brazil who is a large exporter to China) and commodities. On the flip-side, China could devalue the Yuan, which would be a boost to US exporters. This remains to be seen, and is yet another reason why diversification is important.