Dow Plunges 800 Points, Fundamentals of US Economy Still Strong
As you may be aware, the Dow Jones Industrial Average plunged 800 points yesterday, August 14th, marking the worst single day point drop of 2019. The media attributed the plunge to a slowing global economy, a trade war with China, and an inverted yield curve.
The 10-year treasury rate for a time on August 14th dropped below that of the 2-year treasury rate. This inverted yield curve means that if you invested in bonds you would be paid more interest to hold 2-year bonds than 10-year bonds. The idea with bonds is that you should receive a higher rate of interest the longer you lock up your money.
Historically, an inverted yield curve has been an early signal that a recession is around the corner. However, key treasury rates briefly inverted last year on December 3. At that time the 3-year treasury rate and 5-year treasury rate briefly inverted. Even with this brief inversion last year the Dow is still up 9.14% year-to-date through August 14th.
AAFCPAs Wealth Management has not changed our approach and belief that a long-term asset allocation strategy based on a well-thought-out plan is the best course of action. We urge our investors to stay the course, and not be overly influenced by the barrage of negative news. The fundamentals of the US economy are still relatively strong. Recession or not, volatility is a part of investing and the best way of addressing this is to build a plan that accounts for this uncertainty.
If you have any questions about your personal financial plan, please contact: Carmen Grinkis, PhD, CLTC, CFP® at 774.512.4061, firstname.lastname@example.org; Andrew E. Hammond, CFP® at 774.512.4143, email@example.com; or your AAFCPAs Wealth Advisor.