Good morning everyone,

The data is good, and yet the psychology is poor. So what exactly is going on right now, and should you worry?

As most of you reading this already know, the Dow Jones Industrial Average has declined 1,841 points (7%) over just the past two trading days, including an almost 1,200 point drop yesterday. At least at the open, today is not looking any better. However, the math of yesterday's drop quickly gives perspective:

  • It was the biggest single-day point plunge in the index's history, as the media has been quick to trumpet.
  • However, it was the only the 100th largest single-day percentage decline.

Said differently, yesterday was a very notable day but not a historic one for the markets. While the current pullback is scary and painful, it is not at all uncommon.

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The market narrative is relatively straightforward:

  • Wages are firming, as wage growth in January was 2.9% higher year-over-year. This was the fastest rate of growth in almost a decade, and evidence that our extremely low unemployment rate was forcing employers to pay higher wages. Good news.
  • Inflation is manifesting itself, leading to concerns about the economy overheating.
  • Investors continue to wake up to the fact that interest rates are continuing to rise.

However, dips like these that get everyone buzzing can more often than not be viewed as a market "panic attack," and as jolting as this pullback has been, it is important to stress the following: the stock market is not representative of the economy over the shorter-term, and the market downturn is not being driven by bad news. Instead, we believe the opposite: the market is reacting to good news.

The U.S. economy is doing very well right now, and the chance of a recession is currently quite low. Unemployment is at a 17-year low, hiring is strong, and growth is very solid and expected to pick up even more this year. Consumers and companies are opening their wallets and spending, and all indicators are that will keep happening in 2018.

In our view, this pullback is crowd psychology at its best. After Friday's initial 666 point sell-off, investors took the weekend to think and worry about what happened, and sold yesterday, and again so far today. While we never like to hear it, this is normal stock market volatility (albeit volatility we have not experienced in quite some time) that we actually consider healthy.

What to do now?

  1. Have a plan for your finances, investments, and retirement, and just as importantly, be disciplined in following it.
  2. Be properly diversified, and know the level of risk you are taking in your portfolio.
  3. Rebalance your portfolio regularly, and have a plan to systematically take profits.
  4. Own income-producing investments - interest and dividends are credited to your account independent of whether the market goes up or down.
  5. Maintain dry powder (a cash reserve), and use it wisely.
  6. Communicate with your advisor, and proactively discuss if any adjustments are merited.

None of us have the ability to control the wind, but we are able to set the sail. And in volatile times, wealth is transferred from those who are fearful to those who are disciplined. We are on top of things here at Towerpoint Wealth, and encourage you to call (916-405-9140), email (, or Tweet (@twrpointwealth) us to discuss your concerns or questions. We are here for you, and look forward to connecting with, helping, and being a no-strings-attached, fully-independent expert financial resource for each of you.

- Joseph and the Towerpoint Wealth team

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