Black Monday Market Update
This Monday morning U.S. and Canadian markets opened to one of their worst declines in years. This shock to the markets, which started in China, demonstrates the close connection of global equity markets.
Today, markets dropped in China by 8.5% following an 11% decline last week. China’s stock market decline is a response to slower global growth, recent devaluation of the Yuan, the high concentration of emotional retail investors and ineffective market oversight.
In the larger global economy, China set the stage in market performance for the rest of the world. In Japan, the Nikkei was down 4.6% and European markets closed down 5.6%.
Oil prices have fallen below $39, in part due to the economic slowdown in China. This was reflected with the S&P/TSX Composite down by 768 points. South of the border, the S&P 500 and Dow Jones Industrial Average (DJIA) also plunged; the DJIA dropped by more than 1,000 points. However, it is clear this correction doesn’t have strong fundamental support as markets are already adjusting for this morning’s declines. S&P/TSX Composite, S&P 5000 and Dow Jones have already gained back some of their initial losses.
What does this mean for investors and you? It is important for investors to remember that periods of high volatility and significant market declines like this will occur from time to time. These are the times when it is the most important to maintain a disciplined and diversified investment strategy, to hold steady throughout the market cycles, and to avoid panic. In reacting to negative market events, novice investors tend to participate in most of the losses while missing out on most of the gains out of fear for future loses. Investing with a low-cost discretionary portfolio manager like WealthBar can help minimize the emotional aspects of investing by allowing a professional to maintain a consistent and diversified portfolio for you. Short-term market adjustments are to be expected and maintaining a focus on the long-term is an important part of a good wealth management strategy.