If you took a look at your 401(k) last year, you probably liked what you saw.
But the start of 2014 has been a completely different story. The stock market has taken a bit of a plunge in the first few weeks of the year after a record-setting 2013.
The Dow Jones Industrial Average is down nearly 3 percent for the year after sinking more than 5 percent in January. It’s not much by historical standards, but the change has been something of a shock after the rally of the past two years. Financial advisers and investment professionals say it’s all part of a market functioning well.
“This is very healthy for the markets. This is very normal,” said Don Olmstead, managing partner of Novare Capital Management in Charlotte, N.C. “We do not think this is 2008 or 2009 all over again.”
2013 was a banner year for the stock market. The Dow set record highs on 52 trading days, and topped 15,000 and later 16,000 for the first time. But the last three months of the year also set the stage for the current downturn.
Markets soared 10 percent as the Federal Reserve decided to hold off on winding down its massive economic stimulus. Normally, that’s the kind of jump you might see in an entire year. And while corporate earnings were good, they weren’t growing as fast as the stock market.
“At that point, we just needed a trigger,” said John Lynch, regional chief investment officer for Wells Fargo.
Such a trigger came quickly. Data from China showed the country’s growth was slowing. The Federal Reserve started the long-awaited taper of its bond-buying program. Investors began taking their money out of the higher-volatility stocks that did so well in 2013.
“The pendulum swung a little too far toward the higher-risk names,” said Daniele Donahoe, president of Rinehart Wealth Management in Charlotte. “You go that long without a proper correction, you’re just bound to have one.”
Part of it came from investors wanting to realize some of the price gains they booked over the course of the past year. Others sold stock to ease their tax burden. But in general, they wanted to make sure a rising market was sustainable over the long term.
“You’ve got people a little more cautious right now and taking profits from 2013,” said Kendrick Mattox, the Charlotte-based senior investment adviser of Edge Capital Partners.
“They’re now in the wait-and-see mode to see if earnings are going to drive the market further.”
But what should people do now? The first thing, advisers say, is not to get too worked up. There hasn’t been a correction in the market — defined as a 10 percent pullback — since summer 2011. There’s usually one every year, and smaller pullbacks happen even more often.
