Recent stock market declines have taken the S&P 500 into correction territory (10% below peak levels) for the first time since 2011. Geopolitical conflicts, the ongoing Euro area crisis, central bank policies, and the age of this business cycle are a few reasons investors are nervous today. Corrections are a normal part of the market process and it is important not to overreact. Negative market movements often lead investors to inappropriately alter their asset allocations, potentially harming their ability to achieve long-term investment goals. Rather than fear volatile markets, investors should stay the course by focusing on long-term economic and market expectations. After all, an investor’s sensitivity to market volatility is largely determined by his or her investment time horizon, and equity markets have rewarded those who have stayed invested over longer periods of time.
Despite the fact that China and Greece have covered the headlines recently, the recent short-term news does not impact our view on the long-term prospects for equity markets. U.S. companies continue to report earnings that either meet or exceed expectations, which help to boost the outlook for continued economic expansion. This correction may actually be healthy for the long-term sustainability of the current bull market, as it allows corporate earnings to catch up to the highest stock valuations we’ve observed since 2009. Energy prices remain low which has a net positive effect on the U.S. and other developed economies as consumers will have more discretionary dollars to spend and manufacturers will have lower overall input costs. Based on the stable U.S. economic environment, our outlook for equity markets remains constructive. Compared to other asset classes, stocks represent the best risk/reward opportunity over the next several years. We may look back at this time as a good opportunity to put new money to work for the long-term.
We understand market environments like the one we are experiencing now can cause apprehension, especially since we have not seen volatility to this extent for several years. As always, a Hills Bank Trust and Wealth Management account representative is always available to review your current asset allocation to ensure that you are appropriately positioned for the long-term.Investment products are not a deposit, not FDIC insured, not insured by any federal government agency, carry no bank guarantee, and may go down in value.