Riding out the stock market decline: This is not the same as 2007, says wealth management firm in The Woodlands

THE WOODLANDS, Texas – The recent stock market fall has created a lot of unease for investors, but Treasury Secretary Steven Mnuchin on Tuesday tried to soothe worries by saying the plunge was not related to issues of financial stability, and that underlying economic essentials are strong.

Indeed, Rhame & Gorrell Wealth Management Chief Investment Officer Henry Pizzutello said markets have sold off primarily due to concerns about interest rates and fear of inflation.

"It is important to realize that rate rises are not necessarily a bad thing for equity markets - if rates are rising because of underlying economic growth, as is the case, then equities will continue to perform," Pizzutello said. "This is a very different economic environment than we faced in 2007. Global liquidity today is substantially better, even after taking into effect the federal balance sheet reduction."

Pizzutello said the biggest key to gauging how to act during decline phases is to look at what's driving the decline and determine whether it's an isolated or structural issue.

"The relative speed of the recent decline can probably be attributed, to a large extent, to momentum-based algorithmic trading strategies," he said, "but these will also move the markets higher when momentum shifts the other way."

It's hard to predict when that might happen.

"Market corrections are notoriously difficult to time," Pizzutello said. "Talk to traders who pulled out after the market dropped 10 percent following Brexit – and then got whipsawed on the upside."

Pizzutello said he would almost characterize what has happened over the last few days as "normal market behavior."

"Investors have gotten used to the low volatility environment, which is not the normal state of markets," he said.

"The best way to manage market declines such as this is to have a diversified portfolio that is not overly exposed to any single asset class. The ability to minimize downturns on a portfolio is the single best barometer of long-term performance."

Disclaimer: The views, thoughts, and opinions expressed are for informational purposes only and do not constitute financial advice. Rhame & Gorrell Wealth Management, LLC (“RGWM”) is an SEC registered investment adviser with its principal place of business in the State of Texas.