'Don’t panic and keep a long-term perspective'
Oil price wars over the weekend, which came amid fears of a spreading coronavirus, sent U.S. stock prices into a tailspin Monday. But Topeka wealth management expert James Walden says a declining stock market isn’t cause for concern just yet.
Walden, chief investment officer for Clayton Wealth Partners, says that, on average, the U.S. stock market sees about a 20% decline once every three years. He stresses that the current decline is much different from the 2008 stock market crash.
“We don’t see any systemic issues like we did then,” Walden said. “There’s no real threat of our financial system collapsing like there was back then, so we do think that this period is different.”
The stock market dive Monday came after Saudi Arabia, a major exporter of oil, opted to lower prices and ramp up its production of oil to increase its market share.
“Now why are markets reacting to this? Because here in the United States, we have a lot of marginal players in our domestic oil patch, and they need oil prices at a certain level to make money,” Walden said.
“Some of these marginal players also have high levels of debt,” he added, “so these significant declines in oil prices can have a big impact on some of these companies but also the industries that are associated with them — and also the economies of states like Texas and North Dakota, which rely heavily on oil.”
He suggested direct impact on the Kansas economy, which relies heavily on agriculture, could be limited.
“We monitor the markets continuously, paying particular attention to the stock prices of existing Kansas companies and to several companies we are working to recruit into the state,” said David Toland, secretary of the Kansas Department of Commerce. “Markets never move in one direction forever, and it’s important to be circumspect about taking action based on the emotion of one day or one week.”
Walden agrees, and he encourages investors to think long term.
“Don’t panic and keep a long-term perspective,” he said. “If investors are still relatively young and are a net saver, investors should welcome these periodic sell-offs because investors can then buy more shares of investments at a cheaper price.”
For those who may have a shorter time frame for investments, he added, Monday’s market activity highlights the need to build a diversified portfolio.
Still, Walden expects U.S., and global, gross domestic product to take a hit from the uncertainty surrounding the novel coronavirus, or COVID-19.
“We think that there’s two reasons why the market has been declining,” Walden said. “The first one is due to the uncertain nature of events. Markets in general just abhor uncertainty. And the second reason is that there will very likely be an impact to the U.S. and global economies — so it’s two-fold.”
Tom Siomades, chief investment officer for AE Wealth Management, said market dips tend to come in waves.
“Volatility in markets is sort of the price you pay for returns, and it’s always been the case,” Siomades said. “We’ve had prior pandemics and epidemics — whether it was SARS or MERS or Ebola or Zika, you name it. ... Within a year of these types of things, (markets) always tend to bounce back.”
Walden said in the near term he hopes to see some sort of policy response from the Federal Reserve and other global central banks, “as well as any potential fiscal response coming from the administration and Congress.” Investment managers, he added, are paying close attention to the growth rate of new confirmed cases of coronavirus in the United States.
Getting the stock market back on track, Walden added, may take some time.
“It bounces along with fits and starts,” he said. “This bottoming looks like it’s going to be a process, and we anticipate volatility to continue.”