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Market Perspective - October 2018

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Market Perspective - October 2018

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Market Perspective - October 2018

  1. 1. Market Perspective – October 2018 Experience Insight Impact Overview: As is normally the case with markets, volatility has once again picked up after a lengthy period of investor complacency. During these times, we seek to reframe the dialogue with clients, reinforcing a long-term perspective. Timing markets has proven unsuccessful and most market pundits advise against such efforts. While we touch on potential reasons for the increase in volatility, this month we focus more on reminding ourselves and our clients about historical market downturns and just how naturally occurring these events are. 1
  2. 2. Current Environment Experience Insight Impact 2 Some of the reasons for the current increase in volatility include: • Interest rates have increased rapidly as the Federal Reserve continues to raise rates, with fears of the economy overheating at top of mind. • Global tensions regarding trade have increased, with currencies around the world impacted by the ongoing rhetoric. • Concerns over corporate earnings are beginning to develop after some of the strongest growth we have seen in years. Market participants have started to question how long this will last. • Some weakness has begun to develop in a few segments of the economic data, such as housing (likely due to interest rates).
  3. 3. Where Are We Now? Experience Insight Impact 3 As of 10/18, the S&P 500 (above, in white) is down 5.37% from its all-time high. Global markets have performed far worse. More interestingly, the bond market (above, in yellow) remains firmly in negative territory, with the Barclays Aggregate Total Return down 2.85% from its highs and down 2.3% YTD. Source: Bloomberg
  4. 4. Equity Drawdowns Are Normal Experience Insight Impact 4 This table shows that on average, the S&P 500 has experienced a 5% drawdown about every 71 days since 1929. The recent market activity is a normal part of investing.
  5. 5. Thinking Long-Term Experience Insight Impact 5 The red dots above indicate the intra-year declines, while the gray bars show year-end performance. As shown, selling stocks during down periods tends to be the wrong move.
  6. 6. Never Panic Experience Insight Impact 6 During the 11 bear markets experienced since 1945, investors who endured peak to trough bear markets still ended up close to flat within 2 years after the peak (on average). A bear market is typically defined as a 20% decline in the benchmark.
  7. 7. Market Perspective – October 2018 Experience Insight Impact Conclusion: Over time, the fundamental reasons to own stocks and other asset classes will change. While it makes sense to continually revisit allocation decisions based on fundamentals, as well as for changing life circumstances and/or client cash flow needs, market movements unto themselves are typically not reasons to panic in to or out of a particular asset classes. History has proven time and time again that patience and logic create a more positive risk/reward path for long-term investors. 7
  8. 8. Disclaimer Experience Insight Impact Opinions expressed in this commentary may change as conditions warrant and is for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. Consider seeking advice from a professional before implementing any investing strategy. 8

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