Dow plunges on Monday, Mid Michigan economist and financial planner offer advice
(02/05/2018) - The Dow Jones Industrial Average fell almost 1,200 points on Monday, as fears of investment security grow
Economist Ed Derbin said a booming economy is partly to blame for what we're seeing take place on the stock market right now.
The smiles on the faces of those wearing Eagles jerseys at the closing bell probably have more to do with the perfromance of the Eagles at the Super Bowl on Sunday than the stock market on Monday.
The Dow Jones Industrial Average dropping almost 12-hundred points, surpassing the historic point dip in the fall of 2008.
Derbin said Friday's glowing jobs report, combined with wage growth and a strong GDP forecast has the Federal Reserve worried about inflation.
To illustrate his point, pretend your tire is the economy, if you fill it up with too much air, and it expands too quickly, it's going to pop or explode.
The fed, fearing inflation, wants to let some of the air out of the tire.
They do that by raising interest rates and that's what the markets are responding to.
"If the fed drives up interest rates," said Derbin,"they want to slow the economy down, they want to slow business growth down in essence."
"You combine all those things together, " he added, "you end up with the Dow kind of collapsing. This would be a very short term reaction to this."
Michael Foguth with Foguth Financial Group said now is a good time to 'stress test' your portfolio:
"If you just look at your 401K," Foguth said,"you have a plan administrator, call them, somebody's in charge of your money over there, call them, ask them expertise, what should I be doing?"
Derbin advised sitting tight right now.
"If you have cash this is the time to invest rather than run the other way and certainly don't sell off your portfolio," he said, "there's no reason for it, this again is a reaction to somebody else's reaction, that being the fed."
Derbin added that if you have a normal investment portfolio you will feel some pain in the short run, but if Main street take off then the stock market will respond as well so this is a rebalancing, not time to panic.