Dollars and Sense


Don’t let short-term market volatility derail long-term investment perspective

Jeff LeFave, Edward Jones

First quarter 2018 brought some big drops in stock prices, but local investors should not allow short-term stock market fluctuations to derail their long-term investment decisions, Jeff LeFave says, especially when the likely causes of the market volatility actually suggest reasons for optimism.

Some good economic news may have contributed to the sell-off of stocks. A 17-year low in unemployment and solid job growth have begun to push wages upward. These developments have led to fears that the Federal Reserve may seek to fight inflation by raising interest rates – and just the expectation of these higher rates has helped pushed stocks downward.

Another cause of the market volatility appears to be investors’ response to the long bull market, which is nearly nine years old. While rising stock prices typically draw more investors into the market, some people still need to liquidate their stocks, and this pent-up selling demand, combined with short-term profit-taking, has helped contribute to the large sell-offs in recent days.

“Some market pullbacks really do signify the beginning of a bear market, and possibly even a recession,” LeFave says, “but that just doesn’t seem to be the case right now. Over time, we expect stocks to be supported by a strong economy and by corporate earnings growth – and both are currently looking pretty good.”

In fact, the U.S. economy is near full employment, consumer and business sentiment have risen strongly, manufacturing and service activity are at multiyear highs, and GDP growth in 2018 appears to be on track for its best performance since 2015. Furthermore, corporate earnings are expected to rise at a double-digit pace this year.

Apart from these solid economic fundamentals, the stock market’s recent history also should provide investors with a sense of perspective, LeFave says.

“We had pretty sizable sell-offs over short periods in 2015 and 2016,” LeFave says, “and in both cases, the market regained all the ground it lost, and then some, in just three months. Of course, past performance of the markets is no guarantee of what will happen in the future, but investors should take comfort in knowing that we’ve been here before.”

According to LeFave, the current situation can provide good opportunities for long-term investors to purchase quality investments at lower prices. Still, investors should first review their portfolios to determine if any changes are needed.

“Higher market volatility seems likely to continue, so be sure you’re prepared for it,” LeFave says. “And one of the best ways to do that is to own an appropriate mix of stocks and bonds, based on your risk tolerance, time horizon and long-term financial goals. You may need to rebalance by adding fixed-income vehicles – or even some new stocks – to return your portfolio to a position where it’s helping you move toward your key objectives, such as a comfortable retirement.”

Ultimately, LeFave says, investors need the discipline to look past short-term downturns and the perseverance to keep investing in all types of markets.

Edward Jones, a Fortune 500 company headquartered in St. Louis, provides financial services in the U.S. and, through its affiliate, in Canada. Every aspect of the firm’s business, from the investments its financial advisors offer to the location of its branch offices, caters to individual investors. The firm’s 15,000-plus financial advisors serve more than seven million clients and care for $1 trillion in assets under management. Visit the firm’s website at and its recruiting website at Member SIPC