On Monday, the Dow plunged more than 1,500 points throughout the day, finally losing 1,175.21 points, placing the stock market in correction territory. According to CNN, the drop in the market made it the single worst day ever for the Dow since August 2011.
The Dow lost approximately 4.6% in value and impacted the stock markets around the globe, causing many global markets to decline.
Reason for the Drop
There is not one single reason, but a few things rolled into one.
First things to consider, the economy is strong and healthy. A recent jobs report indicated wages have increased approximately 2.9%, up from the previous year and more than 200,000 jobs were added to the workforce. In addition, the unemployment rate has remained steady overall (although black unemployment went up to 7.7%).
Because of the healthy economy, the Federal Reserve is expected to raise interest rates throughout the year. When interest rates increase, the cost of borrowing increases as well. As rates rise, stock prices begin to fall.
Also, bond yields have risen, which could be disturbing news for stocks. Investors are likely to pull money out of risky investments such as stocks and bonds when there is turbulence in the market.
Lastly, the Federal Reserve has just sworn in the new chairman, Jerome Powell, to replace Janet Yellen. This also brings slight uncertainty to the market.
What Should Black Investors do?
Stick to your retirement goals. You have to understand your long-term purpose. If you are investing in the stock market for retirement and it will be several years or more before you will need the money, then you should stay put and keep the money invested. The market has seen corrections and declines before, therefore it is important to stay the course.
Make certain you are well diversified – The next thing to keep in mind is to make certain you are well diversified, meaning that you don’t have all of your eggs in one basket. And, of course, this will depend on your risk tolerance, but if you are a younger investor, you should consider investing in a portfolio that consists of a higher percentage of stocks and a smaller percentage of bonds. However, if you are moving toward retirement, it may be a good time to review your portfolio to ensure you are not investing too aggressively, since you may need your money soon.
Finally, this is a great time to meet with your financial adviser. Discuss any concerns you have regarding your investments and what steps you should take.