Crash! Money markets tank, but some Portlanders don't blink.
White Knuckles
The rollercoaster ride continued this week as stocks moved at least 2 percent every day; however, with all of that volatility the S&P 500 was up 1 percent.
Too Much to Overcome in the Near Term
As investors, we know that near-term sentiment can get ahead of fundamentals, and we felt that was the case early in the year. What would cause the market to pull back was not as easy to determine, but it appears earnings and the Coronavirus are the current catalysts for selling stocks. Now seems like an appropriate time to remind investors how we manage through turbulent times, and how we view market corrections versus bear markets.
A Tin Star for the Market
On Saturday, March 9, we mark the 10th anniversary of the stock market bottom that started the great bull market we’re now experiencing. Traditionally, tin is the gift given on a 10th anniversary. So in lieu of a gold star, the equity markets deserve a tin star for impressively running up 400 percent since that bottom.
Leave the Past Behind
Stocks put in a bottom on Christmas Eve of 2018 and have since rallied close to 10 percent. While December of last year was the worst since 1931, we believe that the worst is behind us.
Glass-Half-Empty Earnings Season
On Wednesday this week the S&P 500 plunged by 3 percent on cumulative fears of slowing economic and earnings growth as well as concerns of a slowdown in China and the Federal Reserve being too aggressive in increasing short-term interest rates.
A Tale of Two Headlines
Charles Dicken’s iconic tome illustrates aptly the interplay between earnings news and economic news of late. Every day it seems good earning news is complemented with slowing economic news and vice versa. Recent market volatility has pushed cautious investors to the sidelines and those that remain are riding the markets up and down with every recent news release.
It's Always Something
With trade tensions picking up, the S&P 500 experienced a wild ride this week, ending the week declining more than 1 percent. The first week of trading in the second quarter experienced huge intraday swings, highlighted by Wednesday’s volatility.
Capital Markets Update, February 5, 2018: Correction Versus a Bear Market
NOTE: This communication was originally sent to clients on February 5, 2018.
As we entered 2018 our expectations were for the market to be positive for a 10th consecutive year, but we felt that volatility would return. In the past week, market volatility has returned in a big way. Since January 26, the S&P 500 is down 7.5 percent. This represents the biggest selloff since the China growth scare of January 2016. This correction takes the S&P 500 to negative-1 percent for the year.
Market corrections within bull markets are a common occurrence, yet never pleasant. In our Investment Outlook this year we highlight the difference between a market correction and a bear market. The chart below shows that when a correction occurs in a growing economy the average market selloff is about 13 percent, and it takes about six months to return to even. When a market correction is associated with a recession, the market drops an average of 34 percent and it can take up to three years to get back to even. We believe this is a correction, and not a bear market.
The irony of this selloff is there just may be too much good economic news. The market is selling off over the concern that growth and inflation will accelerate, causing the Fed and possibly other central banks around the world to tighten more than is expected. The market is undergoing an adjustment of expectations around rate hikes and interest rates. Our view is that interest rates will go up this year, but not enough to slow global economic growth.
Recent volatility is not causing us to change our stance on asset allocation. We remain neutral in our clients’ target stock-to-bond ratio. If there is cash in a portfolio that is waiting to be invested, we are using this pullback as an opportunity to deploy that cash. We urge clients to remain patient in the face of market volatility. While we don’t know how long this selloff will last, we do know that selling into weakness is rarely, if ever, a good decision. We continue to believe the S&P 500 will be higher at the end of the year, but volatility has returned.
If you have any questions or concerns, please contact your portfolio manager.