Over the past few months, there has been an abundance of negative press regarding the credit concerns over in Europe. These concerns triggered a nasty spillover effect here in the United States, leading to increased pessimism and greater negative sentiment within the markets. As a result, we’ve seen stock prices decline from late July/early August and have since been trapped in a volatile trading range. Meanwhile, more news continues to spread. Last week Fitch downgraded both Italy and Spain. We saw domestic activity similar to this back on August 5th when S&P downgraded the United States. Though it was a trivial act, the broad market sold off sharply. Over the next few days, we witnessed some of the most pronounced swings in market history which spawned even higher levels of uncertainty and negative sentiment among investors.
This is a classic example of headline risk that investors will inevitably face, (especially during volatile times like this). What investors need to be reminded of is the fact that nothing fundamental changed from one day to the next, and still the market went into a tailspin. This pertains to both the United States and Europe. A rating agency came out and offered their new “opinion” about a nation’s ability to deal with their current debt level. Keep in mind these are the same rating agencies that triple stamped mortgages for the majority of an entire decade only to help spawn the housing and financial meltdowns.
The point is that in situations like these, the cooler heads will often prevail. The “sell everything” mentality is nerve wracking and often shows up at just the wrong time. Emotions tend to get the best of us and acting on them, especially when it comes to investing, is never a prudent strategy. If a slight change or adjustment to your account is in order, keep it simple. Remember, it’s good to pay attention to what’s going on in the markets, but don’t let too many front page articles get the best of you or your investments.
