Stock Market Update

It has been a while since our last newsletter, and a lot has been happening in the stock markets. Volatility is up on concerns about rising interest rates and the ongoing Greek financial crisis. The question is: what should investors do as markets move up and down? Start by reviewing your portfolio and assessing how your stocks performed over the last quarter. Ask yourself whether it makes sense to add shares to positions whose prices have dropped, or whether it is time to take some profits. As long as you stay current on your companies’ stock prices, news, sales, and earnings growth, you will be in a position to make good decisions. There will always be news — some pushing markets to new highs, some triggering drops.

Why do we buy or sell a stock? We buy after doing the research that tells us a given price range represents good value. We sell when we need the money and want to capture price appreciation, or because the stock no longer meets our growth or performance criteria. Should we care how the rest of the world is doing? Absolutely. International events can and do affect U.S. markets and our portfolios. The Greek crisis is a good example: even though U.S. banks have limited direct exposure to Greece, there is concern that global credit stress could weaken the U.S. economy. Greece is roughly $300 billion in debt, has already defaulted on debt payments, and needs a bailout.

Two other drivers are Federal Reserve Chairwoman Janet Yellen and China. Yellen is the voice of the Fed and communicates any changes to interest rates. With U.S. unemployment falling and other indicators improving, the Fed would normally raise rates to keep inflation in check — but many economists think a hike may be delayed because of the Greek crisis and weakness in China’s market.

You will always hear about the Chinese stock market and economy in financial news. China’s stock market is now down 20%, a loss of roughly $3 trillion. China matters to U.S. stocks because many U.S. companies rely on Chinese buyers for their products. Another factor: oil is below $50 a barrel, which is great for Americans at the pump but is hurting major oil companies’ earnings. Investors should stay the course and buy at good prices. Volatile markets are often exactly when quality stocks go on sale. Good luck and happy investing from CFE Finances. We will be in touch with another newsletter soon. If you have any questions or concerns, please email us from our contact page.