Stock market correction

5 Big Money Stories of 2015


Now that the Fed’s long awaited for rate hike is behind us, the financial year is essentially over. Sure there will be data over the next couple of weeks, but none of it is likely to be market moving. That means it’s a perfect time to reflect on the year that was and to look back at the big stories that shaped the financial world. Of course this is much easier than the futile attempt to predict the future at the beginning of the year, but in the spirit of full disclosure, I am going to note when I made the right call and when I missed the boat:

China: 2015 began as China was in the midst of a stock market boom. The steep ascent started in mid-2014, after the Chinese government urged small investors to enter the market. “Policy makers and state media continued to trumpet the rally even as prices rose well beyond most reasonable estimates of fair valuation,” according to Capital Economics, as a full-blown bubble formed.

By the June 12th peak, the Shanghai Composite was up over 160 percent from the 2014 lows. Chinese officials stepped in to try to prick the bubble that it had fostered. Unfortunately, as is the case with most bubbles, pricks often lead to pops and the market tumbled by over 40 percent, before recovering some of the losses.

Economists were less concerned with the stock market and more worried about the waning pace of growth in China. The world’s second largest economy had seen 10+ percent growth for the past three decades, but in 2015, downshifted to a 5-6 percent pace. While China slowed down in 2015 and the stock market tanked, there was no catastrophic “hard landing” as many had predicted. However, the Chinese slowdown, combined with a strong U.S. dollar, made 2015 tough for U.S. manufacturers, who experienced their worst year since 2009.

JS CALL: While I thought that the Chinese economy would slow, I did not predict that the government would intervene in both the stock and currency markets.

Greece: Another year, another flirtation with disaster for Greece and the euro zone. After an election, a snap referendum and lots of political gamesmanship, Greece accepted the harsh terms of yet another European bailout. The Greek Tragedy might be mistaken for comedy, if the human stakes were not so high.

JS CALL: The game of chicken between Greece and the euro zone went on far longer than I thought. I did not think the euro zone (led by Germany) would be as harsh as it was.

U.S. stock market correction It took four years, but U.S. stocks finally dropped by more than 10 percent in August. The main driver was the aforementioned Chinese economy. Investors feared that the slowdown in the world’s second largest economy, in addition to the cooling of once-hot emerging economies like Brazil and Russia, would negatively impact the rest of the world.

The swoon was notable for its brevity - depending on the index; it lasted for a few days to a couple of weeks. Investors were long overdue for the sell-off: according to Capital Research and Management, through 2014, 10 percent corrections occur about every year and 20 percent bear markets occur about every 3 ½ years, so we are also due for one of those—the last one ended in March 2009.

JS CALL: I thought that the correction would occur, but I had no idea that China would be the driving force. Instead, I thought it would occur as a result of the Greek debt stand off.

Oil Plunge: After a 46 percent drubbing, which pushed crude futures down to $53.27 per barrel at the end of 2014, oil managed to trade above $60 early in 2015. But as news emerged that China was slowing down, the bears took hold. In addition to softening demand, global production remained high. Whether it was the U.S.-based frackers, OPEC nations, Russia or Brazil, the oil spigots remained wide open. As a reminder of Econ 101: weak demand + strong supply = lower prices. The savings at the gas pumps was supposed to propel retail sales in the US, but most Americans chose to save those extra pennies, rather than spend them.

 JS CALL: This is one call that I completely blew…I had counted on OPEC nations curtailing output to push up the price of oil and to keep it in a range of $50-$70.

Federal Reserve Rate Hike: In 2015, the U.S. central bank did something that it had not done in over nine years: it raised short-term interest rates. With the economy growing at a decent, though not great 2.25 percent annualized pace, monthly job creation averaging 210,000 and unemployment sitting at a seven-year low of 5 percent, Fed Chair Janet Yellen and her cohorts decided to hike rates at their last policy meeting of the year. Future Fed actions should eventually return rates to the vicinity of 3.5 percent over the course of the next three years, but how markets will react to the normalization of policy is unknown. After all, this was the first increase in over nine years, competing the longest stretch without a fed hike in 25 years. To say that the economy and markets are in uncharted and choppy waters may be the understatement of the decade.

 JS CALL: I predicted that the first hike would occur in September, not in December, so not too far off!

MARKETS: The Dow Jones Transportation Average entered a bear market for the first time since August 2008. The index finished the week down 20.1% its Dec. 29, 2014 record close. Those who subscribe to the “Dow Theory” believe that the 20-stock index that tracks the largest airlines, railroads and trucking companies, can presage broader stock declines.

  • DJIA: 17,128 down 0.8% on week, down 4% YTD
  • S&P 500: 2,005 down 0.3% on week, down 2.6% YTD
  • NASDAQ: 4,923 down 0.2% on week, up 4% YTD
  • Russell 2000: 1121, down 0.3% on week, down 7% YTD
  • 10-Year Treasury yield: 2.20% (from 2.14% a week ago)
  • Jan Crude: $34.73, down 2.5% on week
  • Feb Gold: $1,065, down 1% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.00 (from $2.01 wk ago, $2.45 a year ago)


Mon 12/21:

8:30 Chicago Fed

Tues 12/22:

8:30 Q3 GDP (final estimate, previous reading: +2.1%)

8:30 Corporate Profits

10:00 Existing Home Sales

Weds 12/23:

8:30 Personal Income and Spending

8:30 Durable Goods

10:00 New Home Sales

10:00 Consumer Sentiment

Thursday 12/24:

1:00 Stock Markets Close Early

Friday 12/25: Christmas Day-Markets closed

The Fed’s Two-Day Correction


There were ostensibly three factors behind the recent stock market correction: (1) fear of a slow down in China, which can’t be stopped regardless of measures out of Beijing; (2) a sell off in commodities, which is pressuring emerging markets; and (3) continued concern about when the Federal Reserve will increase interest rates and how the lift off will impact asset prices. After two weeks of volatility, I am more convinced that the Fed may have had a larger role in the correction than the other two factors. Many look back to last Monday (aka “Black Monday” in China, where the main stock market index plunged 8.5 percent) as the beginning of the brutal downside action. Despite reports that Chinese government intervention was coming; there was none that day. All of the sudden, there was talk about the spread of contagion from a collapse in the Chinese stock market, to the Chinese economy, to emerging market economies and then to developed economies.

Let’s peel back the onion on this theory. According to Capital Economics, “The debacle in China’s equity market tells us little directly about what is going on in China’s economy.” The reason is that the massive bull market bubble, which began in 2014 and peaked on June 12th, “was speculative, rather than driven by any improvement in fundamentals…we are witnessing the inevitable implosion of an equity market bubble.” Since the top, the bears have wiped out $4.5 trillion of Chinese stock market value. Despite the massacre, the Shanghai Index is up 1.4 percent this year and a staggering 48 percent from a year ago.

Fear of a hard economic landing in China has been floating around for some time. In the big picture, the days of China’s double-digit growth rates are behind it. But because the total Chinese economy has increased in size, it continues to contribute more than a third of global growth. That’s why a slow down in growth from the government’s 7 percent target, to something closer to 5 percent this year, will reduce Chinese demand for a host of commodities, hence the rout in oil, industrial metals and emerging market trading partners who export those items to China.

And for those who were banking on the Chinese government to shield them from the effects of a slowdown, one hedge fund manager told me, “Too many investors believe that officials in Beijing know what they are doing. In fact, China is really in the minor league when it comes to economic management. Think of the U.S. as any big major league franchise, like the Yankees, the Giants or the Cardinals…China is like the Toledo Mud Hens-lots of great potential, but not in the show just yet.”

Of course all policy makers make mistakes (see: ECB), so maybe the take away is that when central bankers get nervous, we should all get nervous. And that leads us to what could have been the most important factor in the recent sell-off: the U.S. Federal Reserve. Yes, the impact of China and falling commodities is important, but some believe that that the selling pressure began on the Wednesday before Black Monday. That’s when minutes from the last Federal Reserve meeting were released. The officials’ views on current conditions painted a picture not of an economy rebounding strongly after a tough, weather-related first quarter, but of one that still faces downside risk, including “persistent weakness in the housing sector”. That comment prompted a lot of chatter because the data seem to indicate that housing is gaining a lot of momentum.

All of the sudden, it appeared that the Fed was not entirely sure what was going on and how it would respond to global events – that uncertainty sent shivers across trading floors. The stock drop only ceased after New York Federal Reserve President Bill Dudley, said that turbulence in the financial markets made a September rate hike “less compelling” than it was a few weeks ago.

With an economy growing at a better than three percent annualized pace, a labor market creating more than 200,000 positions per month, consumers and businesses spending more freely and a housing market finally making inroads, the best justification the central bank has for keeping rates at emergency levels is that there is little evidence of inflation. Still, it is hard to justify treating the U.S. economy like it is still in the intensive care unit. At some point, the central bank is going to have to normalize policy and when it does, nobody really knows how financial markets will react.

MARKETS: With one trading day left in August, stocks are on track for their worst monthly performance in three years.

  • DJIA: 16,643 up 1.1% on week, down 6.6% YTD
  • S&P 500: 1,988 up 0.9% on week, down 3.4% YTD
  • NASDAQ: 4,828 up 2.6% on week, up 1.9 YTD
  • Russell 2000: 1163, up 0.5% on week, down 3.5% YTD
  • 10-Year Treasury yield: 2.19% (from 2.05% a week ago)
  • October Crude: $45.22, up 11.8% on week
  • December Gold: $1,134, down 2.2% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.49 (from $2.61 wk ago, $3.44 a year ago)

THE WEEK AHEAD: It will be a busy, pre-holiday week on the economic calendar, highlighted by the August employment report. It is expected that the economy created 225,000 jobs and the unemployment rate should edge down to 5.2 percent.

Mon 8/31:

9:45 Chicago PMI

10:30 Dallas Fed Mfg Survey

Tues 9/1:

Motor Vehicle Sales

9:45 PMI Manufacturing Index

10:00 ISM Mfg Index

10:00 Construction Spending

Weds 9/2:

8:15 ADP Employment Report

8:30 Productivity and Costs

10:00 Factory Orders

2:00 Fed Beige Book

Thurs 9/3: 9:45 PMI Services Index

10:00 ISM Non-Mfg Index

Fri 9/4:

8:30 August Jobs Report

Stock Market Correction 2015: 5 Investor To-Dos


The first stock market correction in nearly four years (in 2011, the S&P 500 sank by nearly 20 percent) has been a great reminder to investors of core concepts that can guide us through both good and bad times. First a note about this correction: it was long overdue. In statistics dating back to 1900 for the Dow Jones Industrial, here is the average frequency and duration for stock market sell offs:

  • A decline of 5% or more has occurred about 3 times per year on average, and lasted on average about 46 days.
  • A decline of 10% or more has occurred about once a year on average, and lasted on average about 115 days.
  • A decline of 15% or more has occurred about once every 2 years on average, and lasted on average about 216 days.
  • A decline of 20% or more has occurred about every 3.5 years on average, and lasted on average about 338 days.

Despite being a normal part of the investment cycle, these are trying times, which demand 5 simple investor action items. Here goes:

1. Keep Cool, Sit Still and Do Nothing! There are two emotions that influence our financial lives: fear and greed. At market tops, greed kicks in and we tend to assume too much risk. Conversely, when the bottom falls out, fear takes over and makes us want to sell everything and hide under the bed. To guard against this cycle, try not to do anything amid these volatile trading sessions. Consider this: If you had sold all of your stocks during the first week of the financial crisis in September 2008, you would have been shielded from another 40+ percent in further losses (stocks bottomed out in March 2009). But how would you have known when to get back in? Most investors, from seasoned pros to mere mortals who are saving for retirement, lack the guts or lucky timing to buy when stock indexes seem like they are hurtling towards zero! As a result, even if you made a decent sale in the fall of 2008, you most likely would not have bought the rock bottom in March 2009 and you may have missed the near tripling in value of the indexes from the lows.

2. Remember: You are wired to fail. Human emotions can mess with your investment returns. Benjamin Graham, the founder of security analysis, said in his 1949 masterpiece, The Intelligent Investor. “The investor’s chief problem – and even his worst enemy – is likely to be himself.” Research proves the point: According to Dalbar’s 21st Quantitative Analysis Of Investor Behavior study, the 20-year annualized return (through 2014) for the average equity mutual fund investor was 5.19 percent, compared to the 20-year annualized S&P return of 9.85 percent. Investors lagged the index by a whopping 4.66 percent annually!

Dalbar says the biggest reason for underperformance is psychology, highlighted by investor panic selling at the bottom, as well as the lure of following short-term market trends. Guard against these big emotional pulls by reminding yourself that just because you feel something, does not mean you need to do anything!

3. Adhere to a diversified portfolio…and don’t forget to rebalance. One of the best ways to prevent emotional swings is to create and adhere to a diversified portfolio that spreads out your risk across different asset classes, such as stocks, bonds, cash and commodities.

Prior to this sell off, the most frequent investment question I fielded on my radio show was “Should I dump my bonds?” I sure hope that you didn’t, because as the stock market has been sinking, those bonds were like a life vest to your portfolio. But that’s the rub with asset allocation: you have to live with certain parts of your portfolio underperforming at times, in order to reap the payback that occurs when market events turn the previous dogs into champions.

4. Maintain a healthy emergency reserve fund. Bad luck can occur at any time. One great lesson of the Great Recession was that those who had ample emergency reserve funds (6 to 12 months of expenses for those who were employed and 12 to 24 months for those who were retired) had many more choices than those who did not. While a large cash cushion seems like a waste to some (“it’s not earning anything!”), it allows people to refrain from selling assets at the wrong time and/or from invading retirement accounts.

5. Understand what is in your target date fund: Over the past ten years or so, many investors have been flocking to mutual funds in which the fund manager “targets” your future date of retirement an adjusts the asset allocation as you near the time that you will need to access the money. Unfortunately, many of these funds are far riskier than investors understand. Whether it’s a target date fund or an age-based investment for your kid’s college fund, be sure to check out the risk level before you put a dollar to work.

Correction Reflection


Time flies when investors are enjoying a bull market. It has been four, mostly blissful years since the last 10 percent correction for stock markets. Back then, the fragile economic recovery was at risk due to a Congressional battle over raising the US debt ceiling limit. This time around, we have plain old anxiety about global economic growth. Although the U.S. economy continues to show improvement, the fear is that a slowdown in the world’s second largest economy – China – not to mention the cooling of once-hot emerging economies like Brazil and Russia, will impact the rest of the world. Considering that Europe and Japan are muddling along and the U.S. is only growing by about 2.5 percent a year, any significant headwind could pose a threat.

Yes, you have heard this story before, but previously, when sluggishness infected China, the government there would waive its magic wand and poof—things would pick up. This time, efforts by Beijing officials to intervene in its stock and currency markets have thus far failed to quell the slowdown fears.

As a result of the China deceleration story, commodities have also came under renewed pressure. After bouncing up to $60 per barrel earlier this year, fear that Chinese demand would wane, as U.S. and OPEC’s production remains high, culminated in an 8-week rout that left NY oil futures at $40.45 per barrel, the lowest price since March 2009. Crude is now 34 percent off its 2015 peak and down a staggering 62 percent from a year ago.

The sell-off in oil has pushed down the big energy companies in the Dow and S&P 500, but that’s not the only industry under pressure. Apple stock is down by more than 20 percent from its May high; 328 stocks within the S&P 500 are in correction territory; and about a quarter of them are down more than 20 percent. So, even though the S&P 500 has not yet dropped by 10 percent from its recent peak, two-thirds of its components are suffering mightily.

OK, so now you know what’s behind the market drubbing, but it is important to note that corrections are a normal part of market action. According to Capital Research and Management, through last year, 10 percent corrections occur about every year, so we have been long overdue for one. (20 percent bear markets occur about every 3 ½ years, so we are also due for one of those—the last one ended in March 2009.)

If you forgot about the downside risk of owning stocks, shame on you—there’s no crying in baseball or investing! Over the last 15 years, markets have shown that wild swings are part of being in the game. Hopefully, most investors learned the beauty of a diversified portfolio, one that can help avoid a cycle of buying high/selling low. Additionally, one of the big lessons of the financial crisis/bear market/Great Recession is that everyone should strive to keep at least six months in an emergency reserve fund-twelve months is preferable. If a big expense is coming up, the money necessary to cover it should never be at risk in the stock market.


  • DJIA: 16,459 down 5.8% on week, down 7.7% YTD (down 10.1% from peak)
  • S&P 500: 1,970 down 5.8% on week, down 4.3% YTD (down 7.5% from peak)
  • NASDAQ: 4,706 down 6.8% on week, down 0.6% YTD (down 9.8% from peak)
  • Russell 2000: 1156, down 4.6% on week, down 4% YTD (down 10.5% from peak)
  • 10-Year Treasury yield: 2.05% (from 2.2% a week ago)
  • October Crude: $40.45, down 6.2% on week
  • October Gold: $1,159.60, up 4.2% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.61 (from $2.67 wk ago, $3.44 a year ago)

THE WEEK AHEAD: The market noise has left many wondering if the Federal Reserve might delay its lift off for rate increases. Before the sell-off, consensus was forming around a quarter point bump at the September meeting, but there could be more clues about the Fed’s thinking at the Jackson Hole symposium economic issues facing the U.S. and world economies occurs. The annual event, sponsored by the Kansas City Fed, has often been a place where central bankers introduce new policies, but Janet Yellen has decided not to participate, the first Fed chair to skip the Western sojourn in some time.

Mon 8/24:

8:30 Chicago Fed National Activity Index

Tues 8/25:

9:00 S&P Case-Shiller Home Price Index

10:00 New Home Sales

10:00 Consumer Confidence

Weds 8/26:

8:30 Durable Goods Orders

Thurs 8/27:

Federal Reserve Jackson Hole Symposium begins

8:30 GDP (Q2 2nd reading, expected to be revised from +2.3% to +3.2%)

8:30 Corporate Profits

10:00 Pending Home Sales Index

11:00 Kansas City Fed Manufacturing Index

Fri 8/28:

Federal Reserve Jackson Hole Symposium

8:30 Personal Income and Outlays

10:00 Consumer Sentiment

Near-Correction of 2014 is NOT the Crash of 1987


October, month of crashes, has brought out the bears. It has been three long years since the broader indexes have seen downside moves of 10 percent and just like clockwork, here it is October and we have finally come close to the much-anticipated correction. The selling has been attributed to a slow churn of worry, which started with concerns about global growth stalling, especially in Europe and China. The fear is that just as the US economy has found more solid footing, the rest of the world might drag down the economy and corporate earnings to boot. In the week prior, investors vacillated between confronting those fears head on, and thinking that perhaps the Fed might keep interest rates lower for a longer period of time, which would help buoy markets. The “Fed to the Rescue” rationale may have limited the initial damage to stock markets, but the bears took control last week and dumped out of stocks and poured into the safety of bonds.

It is always scary to see and hear about big point losses, but context is important. On Wednesday, the Dow Jones Industrial Average dropped by more than 460 points, which seems pretty close to the 508-point loss that occurred on October 19, 1987. That day came to be known as "Black Monday" because those 508-points represented a 22.6 percent loss in a single session, the greatest one-day percentage loss Wall Street had ever suffered.

When the Dow was at its lowest level of the day on Wednesday, it was down just 2.8 percent. In fact, at current levels, the Dow would have to plummet about 3,700 points in one day to match the damage seen in 1987. And although the financial crisis of 2008 was more severe and dangerous to the entire financial system than the crash of 1987, Black Friday remains the most dramatic day of trading that most have ever experienced on Wall Street.

Still, the October action has spooked many investors, leading some to worry that a crash—or even a bear market, which is defined as a 20 percent drop over two months, could be coming. The S&P 500 has experienced 12 bear markets since the crash of 1929, most of which occurred in, or around, economic downturns. According to Capital Economics, the current sell-off is unlikely to mark the beginning of the dreaded 20 percent drop, because bear markets do not normally occur in the middle of entrenched recoveries. “There’s nothing in the US data that has fundamentally altered our view on the outlook for the domestic economy…the near-10 percent fall in equity prices has sparked fears that something more pernicious lies ahead. But that drop in equity prices looks out of kilter with the health of the economy.”

Of course market drops could certainly wipe out a portion of household wealth, which may curtail consumer spending and hurt growth. But energy prices have plummeted alongside sagging stock prices and the net effect of lower prices at the pump should more than make up for the hit to the wealth effect from stocks. Still, for those who are worried that a crash or the next bear market is around the corner, the following aphorisms might be worth revisiting:

  • Cash is King: For those investors near or already in retirement, a cash cushion of 1-2 years of living expenses can reduce the urge to panic and sell at the bottom.
  • Planning is Queen: A thorough financial plan that contemplates both good and bad markets can help you navigate a crash and its aftermath.
  • Diversification and rebalancing complete the Royal Family: Understanding your risk tolerance to build an asset allocation on a diversified basis, followed periodic rebalancing really can help protect your money when the next crash occurs.

MARKETS: It was a topsy-turvy week, which caused the volatility index (VIX) to surge to a 2014 high of 31.06 on Wednesday. By Friday, the VIX dropped to 22, a lot closer to its long-run average of around 20, but twice as high as the July low of 10.32 and up nearly 74 percent from a month ago.

  • DJIA: 16,380 down 1% on week, down 1.2% YTD (-5.2% from all time high on Sep 19; correction at 15,615)
  • S&P 500: 1886, down 1% on week, up 2.1% YTD (-6.2% from all time high on Sep 18; correction at 1817)
  • NASDAQ: 4258, down 0.4% on week, up 2% YTD (-7.4% from 2014 high on Sep 2; correction at 4149)
  • Russell 2000: 1082, up 2.8% on week, down 7% YTD (first weekly gain in seven)
  • 10-Year Treasury yield: 2.2% (from 2.31% a week ago)
  • November Crude Oil: $82.75, down 3.6% on the week
  • December Gold: $1239.00, up 1.4% on the week
  • AAA Nat'l average price for gallon of regular Gas: $3.12 (from $3.36 a year ago)

THE WEEK AHEAD: With stock markets wobbling, bond prices are rising, yields are falling and rates for mortgages are tumbling to the lowest levels in over a year. The housing market could use a boost, but the recent drop in rates will not provide any help until next month’s data are released.

Mon 10/20:

Apple, Halliburton, Hasbro, IBM, Texas Instruments

Tues 10/21:

eTrade, Harley Davidson, Kimberly Clarke, McDonald’s, Verizon

10:00 Existing Home Sales

Weds 10/22:

AT&T, Boeing, General Dynamics

8:30 CPI

Thurs 10/23:

3M, Amazon, Microsoft

8:30 Weekly Jobless Claims

Fri 10/24:

Colgate, Ford

10:00 Existing Home Sales

Where’s the Stock Market Correction, Dude?


As the Dow Jones Industrial Average and the S&P 500 touch new records, it’s time to review the state of the current rally.  The S&P 500 has skyrocketed about 195 percent since bottoming in 2009. That makes it the fourth-best bull market since 1928 in terms of both duration and magnitude, according to Bespoke Investment Group (via the WSJ). The market’s very strength is a bit worrisome to some traders because there has not been a 10 percent correction in over three years—as a frame of reference, corrections usually occur about every 18 months. We got close in 2012, but the last “official” one was in the summer of 2011, when the first debt ceiling crisis was raging. According to Yardeni Research, here are the recent corrections:

  • 2008-2009: -57% (510 days)
  • 2010: -16% (69 days)
  • 2011: -19% (154 days)
  • 2012: -9.9% (59 days)

Of course, just because a correction COULD be coming, does not mean you should bail out. There have been times when corrections are rare. The market avoided a 10 percent decline from 1990 to 1997 and from 2003 to 2007. The bulls point out that with the Federal Reserve keeping interest rates low, little sign of inflation and corporate earnings continuing to climb, the bull could still have room to run. The bears note that any given moment, stocks could see a dramatic reversal of fortune, at least in the short-term.

Luckily, you don’t have to time the ups and the downs of the market. In fact, if you simply adhere to your diversified portfolio, you will be able to ride out the highs and lows of the market. Of sure, there will be those who will say that it’s a "stock-picker’s market" or that a managed mutual fund will be better able to absorb downward shocks, but that’s rarely the case; and the pundits doling out that kind of advice usually have a financial incentive to get you to buy whatever it is they are selling.

The benefits of building a diversified portfolio of low cost index funds have been proven over time. Presuming that you have created an allocation according to your risk tolerance and personal goals and that you rebalance on a quarterly or semi-annual basis, there’s no need to change a thing when markets are reaching new highs or correcting.

Stock Market Drop: Blip or Correction?


All of the sudden, those 30 percent stock market returns of 2013 seem like old news, as investors across the globe have a major case of the jitters. Worries about slowing growth in China, weakness in some US corporate earnings and the Fed's decision to curtail its bond-buying are all factors. But the biggest catalyst has been the unfolding drama in emerging markets, where local currencies have been battered. Countries that have depended on foreign investment – including Turkey, Argentina, Brazil, India, South Africa and Indonesia – are seeing a reversal of fortunes as local central banks finally take steps necessary to address  inflation and account imbalances. The fear now is that investors will pull money out of those countries, as well as other emerging markets, igniting a global sell-off in risk assets.

This latest round of selling has everyone talking about a  correction, or a drop of 10 percent or more from the peak. With yesterday’s sell-off, we are down about 4 percent from the recent peak, so we're not there yet. In fact, it's been nearly 28 months – back to the summer of 2011 – since the S&P 500 has experienced a correction. On average, the index has gone through a correction every 18 months or so since 1945.

Of course nobody knows whether the recent selling is a blip or a harbinger of scary things to come. That's why the best advice for diversified investors, who are adhering to a well thought-out game plan is to SIT STILL AND DO NOTHING. But if you have a bit too much risk in your portfolio, use this market volatility as an opportunity to review where you stand, create a target allocation and force yourself to rebalance according to your goals.

Here are 6 more tips that I periodically trot out during market gyrations:

  1. Dont let your emotions rule your financial choices. There are two emotions that tend to overly influence our financial lives: fear and greed. At market tops, greed kicks in and we tend to assume too much risk. Conversely, when the bottom falls out, fear takes over and makes us want to sell everything and hide under the bed.
  2. Maintain a diversified portfolio. One of the best ways to prevent the emotional swings that every investor faces is to create and adhere to a diversified portfolio that spreads out your risk across different asset classes, such as stocks, bonds, cash and commodities. (Owning 5 different stock funds does not qualify as a diversified portfolio!)
  3. Avoid timing the market. Repeat after me: “Nobody can time the market. Nobody can time the market.” One of the big challenges of market timing is that requires you to make not one, but two lucky decisions: when to sell and when to buy back in.
  4. Stop paying more fees than necessary. Why do investors consistently put themselves at a disadvantage by purchasing investments that carry hefty fees? Those who stick to no-commission index mutual funds start each year with a 1-2 percent advantage over those who invest in actively managed funds that carry a sales charge.
  5. Limit big risks. If you are going to make a risky investment, such as purchasing a large position in a single stock or making an investment in a tiny company, only allocate the amount of money you are willing to lose, that is, an amount that will not really affect your financial life over the long term. Yes, there are people who invest in the next Google, but just in case things don’t work out, limit your exposure to a reasonable percentage (single digits!) of your net worth.
  6. Ask for help. There are plenty of people who can manage their own financial lives, but there are also many cases where hiring a pro makes sense. Make sure that you know what services you are paying for and how your advisor is compensated. It’s best to hire a fee-only or fee-based advisor who adheres to the fiduciary standard, meaning he is required to act in your best interest. To find a fee-only advisor near you, go to and to find a broader number of advisors, use the Financial Planning Association's "Find a Planner" tool.