Uncertain market results in steep plunge
Despite closing in honor of former President George H.W. Bush’s funeral on Wednesday, talk of the stock market was anything but quiet following the report that the Dow Jones had plummeted 799 points on Tuesday. What began as a very hopeful week following the US-China trade truce at the G-20 summit over the weekend quickly turned fearful, which Joe Gugino, CFP, AIF, of Gugino & Ryel Financial attributed to the usual culprits: “fear and uncertainty in the markets.”
“The markets don’t like uncertainty,” Gugino pointed out, referencing the recent election as an example. “Let’s take the election — it was uncertain. Who’s going to control the House? Who’s going to control the Senate? The market usually rebounds once its settled because then there’s a clear path going forward.”
Despite the recent election, the markets haven’t bounced back as much, which Gugino and many other financial analysts attribute to U.S. trade agreements with China. At the G-20 summit, President Donald Trump and Chinese President Xi Jinping agreed to a 90-day truce in their trade battle. Trump agreed to hold off on plans to raise tariffs on $200 billion worth of Chinese goods come Jan. 1. Xi, in turn, agreed to buy a substantial amount of agricultural, energy, industrial and other products from the U.S.
However, fears about the trade war remain, especially following Trump’s tweet on Tuesday: “President Xi and I want this deal to happen, and it probably will. But if not remember…I am a Tariff Man.” Gugino pointed out that some may be worried that the trade truce will not become a reality, which has fueled the fear.
Despite the volatility of the stock market, Gugino said the economy, as a whole, is strong. “The economy is solid: the job market, GDP growth, inflation is under control. It’s just a lot of fear and uncertainty that the market doesn’t like with trade, the federal government raising interest rates,” Gugino explained. “Now that the Democrats are in charge of the House, people wonder will there be new investigations launched? People will use any reason to sell, and that’s not always good. When you react off of news, not numbers, that creates fear and uncertainty and volatility.”
The recent Dow Jones plunge is even more surprising given the fact that the markets haven’t seen a drop like this since February 2018. “When you look at 2017, it was pretty much a nice, easy straight line up,” said Gugino of the stock market. “There were eight trading days total in 2017 where the market moved up one percent or down one percent. Other than that, there was zero volatility. 2018 is the complete opposite. It’s been a pretty volatile ride since February. Some people will say that when you average out the ups and downs, it’s a normal market cycle. But it’s not a fun one.”
While the markets may be uncertain right now, Gugino encourages his clients to remain calm. “Stay the course: Don’t act on emotions, and you’ll be fine,” he said. As to where the markets are headed now, Gugino said it’s tough to say, though he expects things to remain volatile. “On my wall, there is one of my favorite quotes by economist John Kenneth Galbraith: ‘The function of economic forecasting is to make astrology look respectable,'” Gugino chuckled. “Right now, it’s a tough market to be in, but just stay calm, don’t react to the news, and you’ll be OK.”