The Week on Wall Street
Stocks were mixed last week amid a busy week of earnings, some troubling economic data, and seemingly little progress on a new fiscal stimulus package.
FACT OF THE WEEK
Today is National Watermelon Day! With roughly 1200 varieties worldwide, watermelons are members of both fruits and vegetables, varying in color, shape, and size, from pink to orange and round to even a square variety found in Japan. With adequate conditions, watermelons can grow to enormous proportions. The Guinness Book of World Records stated in 2013 that the heaviest watermelon weighed 350.5 pounds.
The Dow Jones Industrial Average slipped 0.16%, while the S&P 500 increased by 1.73%. The Nasdaq Composite Index surged 3.69% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, dipped 0.75%.
Stocks Buffeted by Crosswinds
Stocks rode a roller coaster last week, reacting to an opposing stream of corporate events and economic data.
Investors were optimistic on Monday about the ability of mega-cap technology companies to thrive in an uncertain economy. Worries continued into Tuesday over pending Congressional testimony involving the CEOs of these firms.
On the economic front, a strong June durable goods orders report on Monday bolstered investor sentiment. But the optimism faded on a disappointing jobless claims number and a troubling second-quarter GDP number that—while anticipated—was a bit unsettling.
Following some exceptional earnings results from the mega-cap technology companies, stocks managed to rally in the final hour of trading on Friday.
U.S. Dollar Continues Its Decline
Since peaking in mid-March, the U.S. dollar has dropped by nearly 9%. Some of the potential beneficiaries of a weak dollar are global American businesses whose products and services become less expensive in overseas markets.
Conversely, international companies may suffer lower sales in the U.S. as their products become more expensive, creating a mixture of potential outcomes as Wall Street has become more and more focused on the dollar’s trajectory.
August has historically been a particularly volatile month. For instance, in 2019, the S&P 500 posted moves of more than one percent in 22 trading days. One of the possible reasons is that many traders are away on vacation, resulting in light volume, which may amplify market volatility. But this year, it’s uncertain whether traders will be taking vacation leave due to the pandemic.
Should markets become volatile in the weeks ahead, investors may want to remind themselves of the seasonal trends at work.
FINANCIAL STRATEGY OF THE WEEK
HOW TO MITIGATE THE NEGATIVE IMPACTS OF MARKET SWINGS
Market volatility is an inevitable part of investing. And for many of us, understandably, tumultuous times will likely trigger emotional responses to match. We can mitigate our own risk with a few of the following efforts to prepare for the next downturn – and what potential advantages they may present.
Volatility often affects sectors and asset classes differently. Active asset allocation and diversification can expand your reach in the market and broaden your safety net during periods of turbulence.
While diversification doesn't guarantee profit or protection against loss in declining markets, it will help to reduce risk, temper volatility, and enhance risk-adjusted returns.
The good and the bad
Market volatility isn't always bad news. Though it may be tempting to concentrate on losses caused by price fluctuations, it is important to remember that volatility – and changing price trends – may offer possible gains and provide us the opportunity to investigate strategic opportunities.
One way to potentially use volatility to your advantage is through dollar-cost averaging, a disciplined strategy that allows you to put money into the market at a time when many investors may be holding out - and likely for price declines - which enables you to purchase assets at better valuations.
In the right situation, tax-loss harvesting, a practice of selling assets at a loss, may prove beneficial. This strategy can help offset the taxes on your investment gains while also freeing some capital to reinvest at lower prices.
Focus on the long-term
Remember the value and importance of time. Volatile markets year to year have proven remarkably resilient over the long term and have shown positive historical returns over multi-year periods.
By merely staying invested, you may give your assets the chance to rebound in the wake of downturns, benefiting your long-term financial plan and ultimately achieving your objectives.