Why Has the Market Dropped Recently

Market Movement Downward

“Why has the market gone down?” is a popular question with really no specific answer. While pundits (including me) attempt to analyze why market movements occur on the short term, the reasons are many and often indecipherable. This week I did my best to answer this question on CNBC. You can find that appearance here:

September 21, 2020
CNBC- Recovery will be muted at best
https://www.cnbc.com/video/2020/09/21/michael-yoshikami-recovery-will-be-muted-at-best.html 

News and Computers 

On the short-term, market movements are heavily influenced by computerized trading and news headlines. Very rarely are fundamentals a factor in driving market movements. If you look at this past week, markets may have been responding to vaccine news, supreme court nominations, politics, disappointing news on the electric vehicle front, etc. etc.
 
When markets rally as strongly as they have, movements downward are not completely unexpected given a strong upward rally. This is often called a “market pause” or a “consolidation period”. During these times, computerized trading tends to kick in and is exacerbated by different headlines casting doubt about the future.
 
Uncertainty 
 
In the end, that’s why markets move up and down in the short term: unpredictability and uncertainty regarding future events. Doubt is what drives market instability.
 
All of us, you and I, are concerned about future events and what it might mean for the economy and investing strategy. This uncertainty is exaggerated in 2020 as we are sure to have a contentious election and an uncertain outcome. This election is very likely not to be decided on November 3 with any certainty and that will be disconcerting to investors.

A Focus on Fundamentals

If you’re a short-term trader or speculator, it makes for a very difficult landscape. However, if you focus on fundamental investment strategy and look at the cash flow of an investment, it is our belief you have a much better chance of success. This is a core tenant of our philosophy and one we believe gives us the highest probability of meeting our investment expectations focused on meeting your investment goals.
 
Expect craziness in the next few months in the markets. We are headed into a very uncertain time. Still, despite this uncertainty, we believe the economy will continue to show signs of recovery (particularly as a vaccine is released).
 
Don’t be surprised when you see volatility. Expect it; it will be happening.