IMPORTANT DISCLOSURE INFORMATION
The following presentation by New England Capital Financial Advisors, LLC (“NECFA”) is intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from NECFA or any other investment professional of your choosing. Please see additional important disclosure at the end of this penetration. A copy of NECFA’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.newenglandcapital.com.
Should investors be nervous about the stock market?
Stock market jitters, triggered by tariffs and recent breakthroughs in artificial intelligence (AI) by a Chinese tech company, offer a stark reminder that even the strongest bull markets can stumble — particularly when certain stocks are priced to perfection.
The question is, does the sudden flare-up in volatility signal it’s time for investors to be more cautious? Or can the powerful market rally continue?
Stocks have been on a tear since the end of 2022. While investors were bracing for a recession, the S&P 500 Index took off, soaring 26.2% in 2023 and 25.0% in 2024. It’s the first time the S&P 500 recorded consecutive years of 20%-plus returns since 1998–1999, the tail end of the dot-com bubble.
But any comparison to the tech bubble of 1999 must be considered in context: Today’s tech giants are generating solid earnings growth. For example, NVIDIA, maker of the most advanced semiconductors needed to power artificial intelligence, saw profits more than double from a year earlier to $19.3 billion for the quarter ended October 31.
So, this is not to suggest that you should be bracing for a major market downturn. The economic backdrop remains generally positive, bolstered by strong wage growth, steady interest rates and an administration with a growth agenda.
A look back at S&P 500 Index returns since 1928 shows the market was positive 73% of the time, or an average of three years out of four. Stocks sustained negative annual total returns in only 27% of all years.
The temporary January 27 selloff was triggered by surprising reports that Chinese tech start-up DeepSeek had developed a chatbot at a fraction of the cost of leading U.S. AI tools. The news called into question the prudence of multibillion dollar investments in artificial intelligence infrastructure. NVIDIA and chipmaker Broadcom suffered some of the largest declines, after the DeepSeek news, plummeting 17% each. Other participants in the so-called AI stack — from tech companies to power generators to industrials — also recorded sharp one-day declines.
Trump administration tariffs on a range of goods including produce, automobile parts and smartphones then initiated another selloff amid fears of a developing trade war. The introduction of tariffs on goods from Canada, Mexico and China, and the threat of retaliatory tariffs, has added uncertainty. But the planned tariffs on Canada and Mexico have been paused for 30 days as of February 4.
While the longer term impact of the tariffs and DeepSeek’s breakthrough remain unclear, they serve as stark reminders that market surprises are not surprising. What’s more, stocks with elevated valuations can be sensitive to even mildly negative news. While declines are often jarring, it’s worth remembering that market volatility has been relatively tame. Against a backdrop of record-setting highs, the S&P 500’s largest intrayear decline in 2024 was about 8%, and the market rebounded within days.
But a look at history shows that market downturns have been somewhat regular events. Corrections — declines of 10% or more — have occurred about once every 18 months and declines of 5% or more have occurred about twice a year. Periods of market volatility are inevitable, but not permanent. When markets are soaring, they can be sensitive to even modestly disappointing news.
With that being said, New England Capital is constantly monitoring market conditions and of course your long term financial success. As always, please feel free to email or call us with any questions or concerns you may have.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by New England Capital Financial Advisors, LLC [“NECFA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from NECFA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. NECFA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the NECFA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.newenglandcapital.com. Please Note: NECFA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NECFA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a NECFA client, please contact NECFA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.