Stock prices are based primarily on the earnings of corporations. A company may sell a product or service and either earn money or lose money. If a company earns money on a regular basis, it will remain a viable organization. When a company shows losses on a regular basis, something fundamental will have to change.

At times, investment markets can project too far into the future, with undetermined consequences. We are in that type of situation now. Bond interest rates have been pushed to all time lows as central banks across the world attempt to create stimulus to get their economies moving. They have, in some cases, pushed interest rates into negative territory.

The impact of Britain’s referendum has been felt in the financial markets worldwide. If you listen to the news, read a paper or talk with friends, it is a major topic of current discussion. In our view, the significance of this change is buffered by our belief that The most important factor in successful investing is a well diversified portfolio. While international and domestic stocks are down, U.S. bonds have actually increased in value. By the same token, for those accounts in which we have real estate, that asset class has risen in value, too.

For some time, I’ve been writing about the underlying fundamentals of the U.S. economy. I stated my belief that, as the year progressed, the economy would do better and the result would be price gains for U.S. equities. In early March, a leading company that does technical analysis of the market released a statement saying that a strong change had shown up in their charts, indicating that the next nine months could prove very profitable in the U.S. stock market.

The stock market volatility that began in 2016 continues. Going back to the beginning of 2015, and measuring the market decrease since that time, overall U.S. equity value is down by about 10%, which represents a market correction.

The stock market has been pretty dismal since the last trading day of 2015. If you listen to the talking heads on TV and the rest of the media you’d think the U.S. economy is in bad shape, but how you interpret the news and other available information is important. The consensus of these groups is that: China’s economy is faltering (true), the price of oil has dropped dramatically (true), and the U.S. economy is about to crater, not true!

The Federal Reserve Board (FRB) voted on Wednesday December 15^th to raise interest rates for the first time in a long time. The new rate will be in the range of 0.25% to 0.50%. Rates have essentially been in the range of 0% to 0.15% for seven years. Those low rates were intended to help the U.S. economy. During the time of low rates: the job market came back, unemployment went down substantially, the housing market returned and earnings by corporations rebounded. This is what had been intended and therefore the FRB was very successful.

At this time of the year many people think about charitable giving. The obvious and easiest method is to simply write out a check and send it to the charity of your choice. Another method is to give highly appreciated stock. In this case, you get an enhanced tax break because you get the deduction for the full value of the stock, but you don’t pay the capital gains tax.

The markets around the world had a very bad third quarter, with a great deal of volatility. Most markets moved down substantially. China admitted that their economy was growing much slower than was necessary to sustain their economy. At the same time, most other nations saw their economies slowing down as well. While China is a large nation, with a major influence on the Pacific Rim nations, it plays a very small part in the U.S. economy. As mentioned in my previous blog, China represents about 0.06% of our GDP, effectively zero impact!

On August 10th the S&P 500 was at 2104. By August 25th it was at 1868. In other words, the S&P had fallen by 236 points, or 11.22% in 11 trading days. What caused this and what does it mean?