The water cooler topic over the past week has probably been the erratic movements of the stock market. This past Friday alone the Dow swung more than 1,000 points. Before finishing up about 300. It’s been a wild ride, that’s for sure. While scary, we hope to provide proper perspective.
Market volatility has been surprisingly, dare we say, historically very low now for at least the past year. Not since the Brexit vote in June 2016 have we seen such a large and swift move downward. Despite the sometimes alarming reports on the evening news, the decline that started over a week ago, as of the close on Monday, has roughly only erased the market gains of the past six weeks. The overall market, as measured by the S&P 500, is down less than one-tenth of a percent since Jan. 1.
It’s easy to get caught up in the headline of largest declines in many years, but the gains have also been incredibly large over a short period of time. Typically, it’s not unheard of to see 5 percent, or even 10 to 12 percent, corrections during a calendar year. We believe that this decline is just that, a healthy correction. Here is a good tweet by noted economist Brian Wesbury that highlights why we believe that.
“260 of the S&P 500 have reported and earnings are up 16.4%!!! Ex-financial earnings up 18.7%!!! Economy accelerating. Tax cut working. Yes....this is just a correction!”
The bond market has been declining, something we’ve been detailing over the last several weeks. The bond market is the largest market in the world. The economy is doing so well that the Federal Reserve is now believed to have the green light to raise interest rates more than originally anticipated. This is causing some jitters, and is likely the catalyst for the decline in stocks.
The fact that the economy is accelerating is actually causing the incredibly sharp rise and recent fall in the market. This is a far better reason for volatility than if we were seeing rising unemployment and declining consumer sales.
The global economy has just started to get in sync with one another. It hasn’t been this way, from a positive perspective, in over 10 years. We don’t believe that it will suddenly be derailed after taking so long to align. Recent data are showing that things are actually accelerating. We believe we are simply seeing some steam being let off from the large rise we’ve seen over the past 12 to 24 months.
As always, we continue to monitor things closely, and should things change to where we believe there is a fundamental shift occurring, we will take appropriate action to hopefully protect the downside of our clients account values. If you have questions about the market or how you too can protect yourself from future market slides contact me at firstname.lastname@example.org.
Aaron Pickert, CRPC, is associate adviser at Stewardship Capital in Independence. Past performance is no guarantee of future results. Advice is intended to be general in nature.