Written on August 2nd by Senior Investment Officer, Peter Eickelberg
By now you have probably seen the news that the Dow Jones Industrials Average fell over two percent today after Congress finalized a deal to raise the US government’s borrowing limit. We were somewhat surprised by the negative market reaction given what was otherwise modestly good news. However, some are saying that the deal lacks robust stimulus measures to help prop up an already weak economy and jobs market, and other disappointing economic data came out today that turned the mood negative. Toward the end of the day, many investors decided to take a cautious view and sold shares.
To provide some perspective while the drop is still fresh in our minds, I want to remind everyone that market participants react far too quickly to new economic developments for them to display perfect foresight. Stated another way, people buy and sell based on expectations in light of what they understand. Often their choice is to trade when they do not understand exactly what is going on. After all, traders want to take advantage of what’s coming before everyone else does. So there is an element of emotion which drives markets in the short run, and we believe it is notoriously difficult to make money by trading in and out of stocks whenever the wind changes.
We at KeatsConnelly continue to watch the markets and keep up with the latest commentary so that we can make adjustments if we see a longer-term trend developing. However, we haven’t yet seen a reason to change our investing principles, and history has taught us to be highly skeptical toward those who believe they can time the market. In fact, even our own trusted commentators sometimes reverse their positions—always with excellent reasoning—so we continue to believe that it’s usually the best policy to stay diversified and stay invested over your investing horizon. We do not know what the coming months will bring as our leaders attempt to comply with the new budget agreement by finding additional cuts, developing pro-growth policies, etc., but we do know that markets dislike uncertainty and that volatility like today’s may continue until there is more clarity around the new rules of the game.