After experiencing record low volatility in 2017, huge market swings dominated this year. According to the S&P Dow Jones Indices, there have been over 100 days this year where the daily spread between the high and low has exceeded 1%. The year started with a large drop in February but recovered and looked in decent position by the end of September. That quickly changed with stocks’ worst October in a decade. However, some relief came in November, only to be slammed in December with the markets dropping almost 20%. By the end, all the major stock indices were posting negative returns for the year, while the overall bond market was flat.
Investors became nervous for a variety of reasons – Federal Reserve interest rate increases, ongoing trade issues, slowing of global growth, inversion of the yield curve (which often is a recession indicator), and political uncertainty, to name a few. While fundamentals remain strong, the markets now seem to be driven mainly by the geopolitical environment.
History has shown that investors able to withstand market volatility are greatly rewarded. Volatility is the price that is paid for higher long-term returns. Missing some of the rebound days by not being invested can greatly hurt an investor’s returns. For example, at the end of December, the markets rallied around 5% in a single day, with the Dow gaining 1,086 points. Rather than selling, many should look to invest more. During market downturns, there are many good stocks “on sale” as valuations are more attractive. Our portfolios are diversified and positioned to withstand volatility, and we continue to take steps to cushion against future market swings.
As always, we are here if you would like to discuss your investments and how they fit into your overall financial plan.
|Index||4th Quarter 2018||Year-to-date|
|Dow Jones 30||-11.31%||-3.48%|
|Bloomberg Barclays U.S. Agg Bond||1.64%||0.01%|
|MSCI EAFE Index||-12.50%||-13.36%|
|MSCI EM Index||-7.40%||-14.25%|
Sources: Y Charts and J.P. Morgan Asset Management
Figures as of December 31, 2018. Past performance cannot guarantee future results.
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