I am sitting here looking at what the stock market is doing the last few trading days for the month of February. Mondays numbers of the Dow closing down 1175.21 to 24,315.75 for example is a -4.6% drop in one day which sounds like a lot. In fact, per CNBC The S&P 500 has given back 6.2% since the start of the month or $1.6 Trillion in market cap. Today the market is showing wide volatility with swings of +-400 points during the session. But is this the end? Is this a market crash? I don’t think so.
First, I am not a financial advisor. However, I was licensed with my Series 7 back in the 80’s and I still watch trends. I was on a trading floor on October 19, 1987 or Black Monday as it is now known. On that one day the Dow lost 22.6% of its value. On that day things were similar but different also. The stock market had been in a Bull Market since 1982, Unemployment numbers were at 6.2%, inflation was being kept in check with higher interest rates. The 30 year fixed Mortgage rate was 11.3%. The market was being charged by Junk Bonds fueling IPOs, Mergers and Acquisitions. As it turned out, a bubble ready to burst.
Today the Stock Market has been on a steady climb since the election in 2016. The Dow added 3000 points to a record of over 26,000 since Thanksgiving. I see this more as a correction and profit taking than a crash though. Even with the recent activity The S&P is trading about 10% above its 200 day moving average which indicates the market is over bought . The numbers are being buoyed by tax cuts, low interest rates and lots of optimism. But look at unemployment now at 4.1% which is flirting with “Full Employment” and also what the Fed calls “Sluggish Inflation” which will start moving soon. Oil is up over $10 a barrel with Brent Crude now at $66.94 as of Monday. Due to the low unemployment rate Wage Growth is showing up, consumers will have more to spend so interest rates will increase to control the coming inflation.
Why this market analysis? Back in 1987 as stocks were sold off the resulting cash had to go somewhere. Traditionally it goes into bonds but something curious happened. Funds also flowed into other assets such as Gold, Fine Art, Wines other collectables and yes Real Estate. This was even with Mortgage Rates in the 10-11% range. Today, another curious thing is happening. Gold has shown a steady growth over the last couple months and Monday closed up over $12 an ounce. The benchmark 10 year Treasury which mortgages use as a basis is still trading fairly flat. This points to Real Estate as still an opportunity to park funds freed from the stock market.
Interest rates are still low with a 30 Year Fixed Mortgage currently at 4.5% (Wells Fargo). With these still low interest rates Real Estate presents itself as a still viable addition to a portfolio. Inventory is dropping with high demand but by using a long term strategy of buy and hold this should overcome fluctuations in the short run. Here on Maui, Real Estate still has values available at all price points of the market. An asset such as Real Estate held for long term here also has the simple advantage that this is a prime location for a vacation or second home. Now that the Stock Market is showing some volatility, why not take those profits, reallocate and let those funds work while enjoying the beach? Talk to your Real Estate Professional to see what can work for you. The low interest rate window is open but that will change. Now is the time.
In closing, please allow me to share with you this video of a new listing in Wailea. It’s a gorgeous one level home with a stunning ocean view. Call me at (808)281-9588 if you would like to schedule viewing. – Aloha, Dan