December 2018 has been a miserable month and we’re having the worst quarter in a decade. What should we expect from here?

December 2018 has been a miserable month and the end of a terrible quarter for the stock market.  Unrelenting volatility and sales pressure has driven returns lower by the day.

How bad is it?

As of this writing (on Christmas Eve), the S&P 500 has declined 19.3% this quarter.  Using the price only version of the S&P 500, this ranks 5th among the worst quarterly returns for the index since 1950.  Declines of this magnitude are very rare.  In fact, a quarterly decline of more than 15% has only occurred 7 times out of 272 quarters over the past 68 years.

So what should we expect going forward? 

The good news is that, historically, returns following a severe quarterly decline are typically pretty good.  As the table below suggests, the average 1-, 3-, and 5- year returns following a quarterly decline of 15% or more are 25%, 45%, and 73% respectively. So if history provides any guidance, we are hopeful that the recent bout of short-term pain will lead to better than average gains to come.

__________Forward Returns_________________

Rank          Date Ended                Qtr                    1-Year                   3-Year               5-Year

  1.            9/30/1974            -26.1%                   32.0%                   51.9%                    72.0%
  2.           12/31/1987           -23.2%                    12.4%                   33.6%                    76.3%
  3.          12/31/2008          -22.6%                     23.5%                   39.2%                 104.6%
  4.            6/30/1962           -21.3%                     26.7%                   53.6%                   65.6%
  5.         12/31/2018         -19.3%                      ?                           ?                            ?                
  6.            6/30/1970          -18.9%                     35.7%                    43.4%                    30.9%
  7.           9/30/2002          -17.6%                     22.2%                    50.7%                    87.3%

Average                               -21.3%                   25.4%                 45.4%                  72.8%

                              This table is not intended to recommend any investment or investment activity.

Our investment process and philosophy is long-term oriented and despite the bumpy road, we expect long term returns to provide for further growth at normal levels.  So, staying with the program through these inevitable and somewhat regular declines is one of the keys to long term investment success.

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 call at your convenience.


Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

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Owen Murray, CFA
Owen Murray, CFA
Owen Murray joined Horizon Advisors in 2005. As a core member of the wealth management team, Owen is principally involved in investment research and portfolio construction.

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