Monday, August 31, 2015

What the recent S&P 500 drop and sell-off means

Melissa Gerhardt, CFP®, Financial Advisor
Legacy Planning Partners
3440 Hamilton Blvd
Allentown, PA 18103
Phone: 484-765-9100 x 308

Over the last week U.S. stocks, as represented by the S&P 500, have approached correction territory defined as a ten percent drop from its peak plus a large sell-off in Chinese equities.
The Shanghai Index was up 135 percent over the last year and, after the sell-off, is still up 45 percent, leading some to believe there may be a bubble.  The devaluation of the Yuan signaled to the market that the Chinese economy might not be as strong as most believed.  Many believe that China is still growing, though, and they have implemented monetary easing to add support.  Unfortunately, this has caused some spill over through-out the global markets.
The activity in the Shanghai index has had a negative impact on the U.S. equity markets, as represented by the S&P 500.  The S&P 500, though, has roughly tripled since 2009.1 This included the last correction in 2011.  Prior to this pullback, the S&P 500 had seen over 1400 days without a 10 percent decline.2
This type of pullback is normal and not unexpected.  Keep in mind that since 1900, there have been 35 corrections.  The U.S. appears to be on firm footing as GDP was most recently estimated at 2.3 precent, unemployment still falling to 5.3 percent and U.S. stock valuations are now at even more reasonable levels.

Generally, short-term market moves and volatility should not impact investors’ long-term strategies. 

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