Stock Prices and your Retirement

Just last week, Wells Fargo announced better than expected earnings and record numbers.  Surprisingly, their stock price went down.  Just like a few years ago we saw a similar situation with Exxon Mobil when they announced that they earned more money in a single quarter than any company had in history.  And their stock prices went down.

We have seen this many times, Companies announce record earnings and their stock price goes down.  Then the opposite will happen when Companies announce they are losing money so they are laying off thousands and then their price goes up.  Why do you think this happens?

Today’s value of a company has nothing to do with what that company has done in the past.  It has everything to do with what everyone expects that company to do in the future.

In the case of Wells Fargo last week, investors saw the past quarter as being really good.  They also saw that mortgage applications have dropped dramatically, which they expect will hurt Wells Fargo’s earnings in the future.  Therefore, the stock price went down.

The problem is that we have no way to tell what will happen in the future. Of course, we can guess, and we can make our best judgements. And then of course we still have to expect the unexpected. 

This is why markets are so volatile.  New information comes into play every day; the unexpected curve-ball.  This is why markets start moving dramatically as they factor in the new information.

This is how stocks are priced, and together, how the market is valued.  It’s not a good environment for the portions of your portfolio that need to deliver income to you.

Make sure your risk exposure is in-line with your risk tolerance as you prepare your overall retirement plan.

Chris Abts