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JOLTS to the System

Published by: Nathan Smith Date: October 15, 2018

This week the Bureau of Labor Statistics (BLS) released the Job Openings and Labor Turnover Survey (JOLTS) that showed that the job market as measured by the number of job openings versus the number of people unemployed is at multi-decade highs. The chart below highlights the data going back to 2001.

Because of the strength in the job market and the expansion in the economy, the Federal Reserve is continuing the path towards higher interest rates with their measured approach focusing on the balance between growth and inflation. At their most recent meeting in September, the Federal Reserve again raised their short-term benchmark rate by .25% to 2.25% marking the eight such increase since December 2015. Many market pundits have used interest rates rising and the escalation of rhetoric between China and U.S. as a reason for the recent market jolts that began in early October, which saw the S&P 500 index fall 5% in a single week.

This move has caused some investors to wonder if the move higher in the U.S. is finally over, and questioning what could happen in the aftermath of the elections coming up in November.

Will investors be better served to stay on sidelines until the dust settles?

The answer to this question depends on many different factors according to an investor’s time horizon, the amount of risk they can afford to take, and what their long-term financial goals are. However, as easy as it is to lose sight of, the U.S. stock markets are still higher than they were at the start of the year. Instead of being up 9% for the year at the end of September, now the markets are only up 4% for 2018. The move down in stocks was sharp and sudden, but it was nothing that investors haven’t seen before during the longest bull market in history.

As noted in the chart of the S&P 500 above, since 2009 there has been a chorus of investors, analysts, and pundits that have warned investors that the bull market was over and that stocks were poised to move significantly lower. Due to the increasing length of the bull market, it’s evident that most investors are becoming increasingly sensitive to the potential of an imminent reversal, and despite 2008 now ten years in the rear-view that experience scarred many investors due to the suddenness and the volatility in the stock market back then. How we can handle this as investors is to make sure that we have a financial plan and portfolio allocation that is tested against adverse scenarios to ensure that if there is a substantial drawdown in stocks, that our long-term financial goals are still secure.

If something has changed in your financial life since the beginning of October, then, by all means, you should seek counsel with your advisor and discuss changes required in your portfolio; otherwise, the wisest choice that will give investors the highest probability of long-term success, is to do nothing. That seems counter-intuitive, but ultimately it could be the best decision that you can make as an investor. Having a globally diversified portfolio in this type of environment should help investors to withstand any jolts that could potentially arise in the future.