Hold on for a bumpy ride, as markets could continue correction
A bloody Thursday on Wall Street had many suburban analysts and investors on the edge of their seats as the Dow briefly plunged nearly 1,000 points because of fears of the collapse of Greece mixed with technical or human glitches.
A system error may have exacerbated the losses, said Diane Swonk, chief economist and senior managing partner with Chicago-based Mesirow Financial.
"Any way you cut it, it is a bloody day and panic over Greece is clearly a root cause," said Swonk.
Considering what appeared to be happening in the late afternoon, the Dow "recovered" Thursday, closing at 10,520.32 down 347.80, or 3.20%.
Investors are still recovering from the market crisis in 2008 and early 2009. Those fears can be easily refueled by the Greek debt crisis. "These fears are on investors minds," said Tom Rowen, director of Institutional Portfolio Management at Fifth Third Bank in Chicago.
Greece has little to do with the pullback but may be used as justification for people who need that, where there really is nothing this tangible, said Diana Joseph, chief investment officer for Barrington Strategic Wealth Management Group LLC in Chicago.
"I believe that computer trading programs run amok (Thursday), the market's proximity to fair value and the fact that this market desperately needed a pullback created a lot of selling with little buying to fill the void, hence prices declined," Joseph said.
Thursday's drop is due to institutional investors looking for an opportunity to sell stocks and lock in gains, said Mark J. Gilbert, a CPA with Reason Financial Advisors Inc. in Naperville and Northbrook.
Undoubtedly, most 401(k) and other investments lost value Thursday, Gilbert said, but the losses may not be permanent.
"My advice to clients is to remember that we originally designed their portfolios with some mix of stock and bond investments, so their portfolio has not lost as much as the broad equity indexes have lost," Gilbert said. "Clients should understand that the stock markets can be very volatile on a day-by-day basis, and that history has shown days like this are often followed by strong upside days. My advice is to hold tight and do nothing as far as making any investment changes."
The market drop was overdue as the recovery had gotten ahead of actual economic results and indicators, said Brian L. Gaspardo, managing partner with the CPA firm, O'Neill & Gaspardo LLC in Mokena and Oak Brook.
"The key for investors is both to be diversified and not panic," said Gaspardo. "Particularly in a 401(k) plan, investments are long term, and there are no tax implications."
Investors need to hold tight, said Mark LaSpisa, co-founder of Vermillion Financial Advisors Inc., in South Barrington.
"If investors have not learned from their emotional decisions over the last two years, (Thursday) was another test and opportunity," said LaSpisa. "Investors should understand that the stocks they own, in most cases, did not experience anything from a business perspective (Thursday) that would justify the current lower stock price."
Fear is a horrible enemy to good financial decisions, said LaSpisa.
"I would advise any clients who are investing for the long-term to speak to their financial adviser before making any irrational decisions," said LaSpisa. "Failure to do this more likely than not will cost them a lot of money over the long-term."