How should investors respond to the past week's sharply falling stock prices? Consider doing "nothing," Vanguard Group, which has boosted assets above $3 trillion in the recent market run-up, urged investors in a note posted today, quoting chief executive Bill McNabb. "Swings in the financial market are normal -- and relatively insignificant" over time, McNabb added. Still worried about losing 3 cents of every dollar from your S&P 500 fund on Friday and again Monday? Learn to live with volatility: "Save more," McNabb suggested.
Does the falling stock market mean anything to the U.S. economy? "Economic fundamentals still look pretty good in the U.S.," Patrick Kaser, who manages large-company value stocks for clients at Brandywine Global Asset Management in Philadelphia, told me. "There is weakness in China, Malaysia, Brazil," and other large economies; but in the U.S., "housing looks strong, we have an auto sales report that looked strong, employment looks strong," at least "for people who can pass a drug test and don't have a criminal record."
And weak demand from Asia means key U.S. commodities are getting cheaper: Gas prices appear headed below $2 a gallon, Kaser noted, "which is fantastic for consumers." Beef and pork, as Jonathan Feeney, Berwyn-based food analyst now with Athlos Research noted, are headed lower, "which is a benefit to lower income consumers, in particular," Kaser added. Won't poor profits for China-focused multinationals like DuPont Co. hurt the U.S. economy? "What they're seeing is the absence of growth. That puts (downward) pressure on prices. But it's not the same as a shrinking economy," Kaser said. "It's a disappointment, it's a scare. As opposed to a global recession.
Weak stock prices don't affect demand or hiring, agreed Bill Stone, Philadelphia-based chief investment strategist at PNC Wealth Management. To the contrary: Strong home sales and other data "point to solid economic growth in the United States," Stone concluded. "The U.S. stock market is a notoriously poor predictor of economic growth."
So why so much hand-holding by investment managers? "Clients are not freaking out -- yet," said Stephen Cohn, partner with his brother Alan in Sage Finanical, a Bala Cynwyd investment firm. Stephen Cohen added that his firm is "proactively" reminding investors that "we are overdue for a stock market correction" after three years of risign share values. This is "healthy," he told cliens. Corrections prevent "bubles whcih create much more serious problems for investors."
. "Client psychology is so interesting," he added, ntoing tha tuncerainty over Fed interest-rate hikes, China growth and the expensive dollar has "generated a new ave of risk-aversion." . Investors today, many of them, have been scarred in some way, if not financially, then emotionally, from 2008," Cohn added. "Unfortuantely, if you are an equity investor, volatility comes with the package of strong long-term returns."