Wells Fargo’s Continued Struggles: Sanctions and Accountability

It’s not over for Wells Fargo just yet! Janet Yellen took the opportunity to deliver one more blow to the bank. Imagining her turning back and pulling a “Columbo” is easy – “Uhhhh, one more thing…” The bank is now on double secret probation, meaning that for any two-quarter period, its average assets cannot exceed the total assets at the end of 2017.

While many bank sanctions often come in the form of fines—large sums that don’t seem to make much of an impact on big banks—limiting growth may prove to be more effective. Wells Fargo’s board members have been fired, customer relationships curtailed, and CEO promises made. Additionally, the Federal Reserve sent a shaming letter to the board. While former CEO John Stumpf legacy has been nearly erased due to the fraudulent activities of bank employees; it does seem unfair to hold him solely accountable. This is likely why I haven’t been invited to work at the Fed.

The Market’s Rollercoaster Ride: Volatility and Investor Behavior

I typically don’t write about the market, mostly because it can be boring. But, over the last year, the market has been anything but dull. Volatility has been at historic lows, reaching levels not seen since before the 2008 financial crisis. But when volatility dips too low, it creates a false sense of security. Investors start ignoring potential risks, taking on more risk than they normally would, and putting money into the market that’s typically kept safe on the sidelines.

The rise of exchange-traded funds (ETFs) and passive investment strategies has contributed to this trend. In 2017 alone, ETFs grew by $500 billion. This increased money flow adds to low volatility, which in turn leads to more money flow in a cycle. But, as expected, markets don’t stay calm forever. After months of climbing, we’ve officially entered a correction—a 10% drop from a market high. It’s perfectly normal for markets to correct, but the speed at which it happened is unprecedented. The S&P 500 has never experienced such a rapid correction.

The good news is that the market is still above its 200-day moving average, which indicates that things are still in relatively good shape. But the media’s sensationalized coverage—like the headline from CNBC stating “What to do when the market tanks”—isn’t helping. A 10% correction after a year of straight profits is hardly a tanking. The Dow is still up 14% over the past year, showing that the market isn’t in freefall.

Market Update: How Investors Are Responding to Volatility

Let’s take a quick look back to the end of last year. The market was hovering around the same level it was in November, but many analysts were already concerned about storm clouds gathering. At Gainplan, we had already reduced exposure in our portfolio and were cautious about the market’s direction. Despite warnings about overvaluation, geopolitical tensions, and high leverage, investors continued to seek more growth.

From November to January, the market soared as investors funneled more money in. But exuberance reached a fever pitch, and as quickly as the market rose, it gave back those gains. Now, investors are nervous again, and some clients have reached out, wondering if they have too much exposure. We’re in the same position as we were in November, but the mood has shifted. Emotions—greed when the market rises and fear when it falls—often cloud investment decisions.

Will the current sell-off lead to further declines? It’s possible. But it’s equally possible that cooler heads will prevail, and the market will recover. In times like this, the best course of action is to step away from the news, stop checking headlines, and engage in activities that bring joy. Remind yourself that the market will go up, it will go down, and it will always remain boring in the long run.

Also,

• Stocks enter correction as rate-hike fears return: Markets wrap
• Don’t forget this bull market hasn’t been correction-proof
• Stocks plunge and traders panic: ‘Did someone fat-finger this?’
• The stock market didn’t get tested—you did
• Here’s the Trump tax loophole your accountant can blow wide open
• Should you buy Bitcoin?
• AT&T, Walmart bolster their tax savings in paying worker bonuses
• A historical tie breaks but trouble still lurks
• Why competitive advantages die
• Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources
• Inverse volatility products almost worked
• Ten years after the crisis, banks win big in Trump’s Washington

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