What to Make of Recent Market Volatility?

Many investors are likely wondering, “What has happened to the market this year?” Still recovering from an extended New Year’s Eve celebration perhaps? 

Most equity markets stumbled during the first week of trading, highlighted by concerns regarding China and the outlook for its economy. Asian markets had the toughest week of trading with most Asian markets down between 5% and 10%, and China’s markets falling more than 10% for the week, according to Joe Correnti, senior vice president of brokerage product at Scottrade. Those stats include a rally in most Asian markets on Friday. 

U.S. markets were clearly impacted by the Asian market performance, as well as increased concerns regarding what a Chinese economic slowdown would mean for the U.S. and global economies. The decline of 6% through Jan. 8 to start the year made 2016 the worst start to a market year as measured by the S&P 500 and Dow Jones, Correnti said.

China’s Global Impact

The potential impact of a Chinese slowdown depends on how you view the existing presence of China in the overall global economy. 

For example, to understand the current situation it might be helpful to put China’s potential impact into more tangible concepts. Consider our significant trading partners: Canada, Mexico and China. Think of those 3 countries, who are buying our goods, as customers of the U.S. As the third largest customer, China, represented about 8% of U.S. export sales in 2015.*

While we would prefer not to lose business from this important customer, China only represents $8 out of every $100 in U.S. export sales. So a continued slowdown within the Chinese economy should have minimal direct impact on our economy. But that view only focuses on the U.S. A slowdown in the Chinese economy could impact other countries and have significant impact on global markets.

An important point to make is that the Chinese economy is still growing. However, investor concerns center on the impact of a Chinese economy that may be growing slower than expected. If a decrease in Chinese economic expansion continues, investors across the globe will feel its impact, and the companies that operate within those countries will likely be impacted as well. 

“Uncertainty typically causes the greatest market volatility. Until the outlook for the Chinese economy is further understood, we would expect additional volatility for U.S. and global markets,” Correnti said.

Your Portfolio and What You Can Focus On

While recent market volatility may have caused you to review your investments, or the contents of your portfolio, we believe it’s always a good time to review your investments. If you have not done so this year, review all your investments and investment accounts as if they were one portfolio and pay attention to the following guidelines to ensure you have a broader view of all your investments.

  • Understand what an appropriate mix of stocks, bonds and other investments for your portfolio should look like, including what the ratio of small-cap, mid-cap and large-cap stocks should look like for you. 
  • While reviewing the size of the companies you hold, also consider the industries, or sectors, they operate within. 
  • Review your mix of international investments.

For questions regarding your portfolio, or to schedule an appointment for a portfolio review, please contact your local Scottrade® team  or your investment consultant.

To get more information about portfolio allocation, check out Rebalancing: Keeping Your Portfolio in Check and 8 Tools to Help Get Your Portfolio on Track.

*https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html

The information and content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

International investing can involve substantial risks and is not suitable for all investors. Risks include changes in currency exchange rates; political, economic and social events; potential for illiquid markets; less information; reliance on foreign legal remedies; and different market structures and operations. Investors should fully research any security or strategy before making an investment decision. 

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