The Return of Market Volatility!

roller coasterFollowing an extended period of low market volatility and remarkable returns, we have received an unwelcome reminder that markets don’t just go up, they can also go down. Worse, sometimes the declines can be swift and painful as they have been over the past few days. As of Monday, the S&P 500 has declined 7.8% from its all-time high, which was reached less than two weeks ago, and markets around the globe have followed with similar declines.

Although the recent declines have been surprising, they are not unusual. We just haven’t experienced this type of volatility in quite a while. The most recent and similar downdrafts occurred in January of 2016, and a few months earlier in the summer of 2015. But declines and volatility are very normal for the stock market. In fact, since 1980, the S&P 500 has experienced an average intra-year decline of almost 14%, but has still been positive 76% of the time. (Click the link to see this chart from JP Morgan, JPM Annual Volatility)

We believe this decline has been caused by technical trading issues and will likely to be short lived. There is no real catalyst to explain the drop other than the market was probably overdue for some type of correction. There isn’t a fundamental reason for the decline, as the economy remains strong. In the wake of this decline, we expect higher volatility in the coming weeks, and to a lesser extent for the remainder of the year. It will likely take a while for things to settle back down, but we don’t view this as the beginning of a serious or permanent decline.

In the short‐term, it is nearly impossible to anticipate the twists and turns in the stock market. But in the long‐term, history shows that investors who have a plan and can remain calm during the short‐term ebbs and flows are rewarded with beneficial long‐term investment returns. Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience.

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