As stock market drops, Alaska Permanent Fund remains up

U.S. stocks plunged on Feb. 5, sending Wall Street into a panic. The Dow Jones industrial average fell by 4.6 percent, its biggest single-day drop, and the Standards & Poor’s 500 fell by 4.1 percent.

Since then, the major stock market indexes have fluctuated, but the initial drops brought the Dow and S&P 500 more than 10 percent from their high prices on Jan. 26.

This is generally referred to as a market correction.

“I don’t think it was terribly surprising. It seems like it’s a reaction to the fact that wages are going up and fears about inflation,” Mouhcine Guettabi, assistant professor of economics and faculty member of UAA’s Institute of Social and Economic Research, said. “I don’t think there is a wider implication than that.”

The next day on Feb. 6, the Dow had gone up 2.3 percent and the S&P 500, 1.7 percent. The Nasdaq composite, which had only fallen 3.8 percent the previous day compared to the other major indexes’ tumbles, had risen by 2.1 percent.

Jacob Shercliffe, political science major with minors in economics and communications, says his reaction to the drops was “it’s about time.”

“We’ve been having a solid market for a long time and it’s due for a correction,” Shercliffe said. “I think that there are a lot of other things happening that obviously change the way the marketplace works. The [Donald] Trump presidency is one, where there’s some uncertainty, but generally has been pretty good in terms of what some investors think.”

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Shercliffe has been investing in stocks for about five years. Some of his money has been put towards ETFs, or exchange-traded funds, which track a commodity, bonds or what’s called a “basket” of assets or securities. The S&P 500 index, composed of 500 leading companies’ stocks, is tracked by an ETF called the Spider.

The U.S. stock market has its ties with Alaskan economy as well. The Alaska Permanent Fund is comprised of various investments, such as stocks, bonds and real estate.

Angela Rodell, chief executive officer of the Alaska Permanent Fund Corporation, says that approximately 40 percent of the permanent fund’s portfolio is invested in stocks, or the public equities.

“Those are stocks all over the world, not just the U.S. but international stocks as well,” Rodell said.

Since the permanent fund is made up of different assets, a plunge in the stock market could be made up for or compensated through another asset.

“When you have stock market drops that happen like that, sometimes it causes valuations in other asset classes to get better because there is what they call a flight to safety,” Rodell said. “People are getting out of their stock portfolios and they’re putting money into bonds and real estate, which means the demand for those assets go up, which means those valuations go up.”

“By having that diversified portfolio [in the permanent fund], you’re hoping to counter losses in one area with gains in another area. It’s not going to be perfect but that’s why we have the diversification of asset classes,” Rodell added.

The audited value for the permanent fund on June 30, 2017, which was the end of fiscal year 2017, was $59.8 billion. As of Feb. 15, it’s at $64 billion despite the stock market drops.

Guettabi says that slow economic growth may bring difficulties for the permanent fund.

“If we are entering a period of much slower growth, then that has implications for the growth of the funds, which potentially translates into lower dividends, and potentially translates into less of an ability for government to draw substantial funds from it,” Guettabi said.

Shercliffe says that attempting to time the market is “pretty much impossible,” but he encourages people to begin investing.

“A lot of investing just comes down to managing the amount of risks that you’re willing to take,” Shercliffe said. “Just try to be financially prudent… There are plenty of safe bets in the market. I think it’s something that everyone should at least know about.”

For Rodell, the swings in the market will probably stay for some time.

“I think the one thing I am expecting is that it will continue to do the unexpected,” Rodell said.

Both the Dow and S&P 500 have increased since their second drop on Feb. 8. As of Feb. 15, the Dow has risen 1.2 percent and the S&P 500 has risen 1.2 percent.