Volatility, Batman!


Holy MARKET REVIEW


oly volatility, Batman! After a stellar year of returns in 2017, and one of the least volatile


years on record, 2018 looked to follow suit: a nearly 7 percent upside move in the major equity


Drew


Kavanaugh, MBA, CFP®, VP Wealth Management


indices in January baffled most market observers. With the turn of the calendar into February, however, markets made it clear they were tired of gradual increases day-by-day and would rather whipsaw like a roller coaster, with some days seeing 4-percent moves to the downside. All told, the major stock averages declined nearly 10% from their January highs, but have managed to recoup most of those losses. As of this writing (3/13/18) the S&P500 was up 3.84%, the


broader MSCI All Country World Index was up 2.39%, and the Aggregate Bond Index lost 2.02%.


While there is plenty of speculation surrounding what caused such a sudden market drop (higher interest rates, exotic volatility products, margin calls, etc.), the fundamentals behind the economy and the companies we invest in remain strong both here and abroad. More importantly, the market is reminding investors that volatility is real, and there will be both ups and downs. Historically, the S&P500 experiences a 14 percent peak-to-trough decline every year. Even with that average decline, the S&P500 has still been able to finish the year with a positive return nearly 75 percent of the time.


After strong performance in 2017 and an even stronger start to 2018, the markets were due for a pullback. Corporate earnings continue to hit record levels, and tax reform should be a wind at the back of nearly every US company. With one of the lowest unemployment rates recorded and wage growth starting to pick up, consumption (which makes up nearly 70 percent of the US economy) should continue to be strong. While we can’t time the day- to-day movements of the market, by maintaining a diversified portfolio and keeping a longer-term outlook, we can ride out volatile markets better than the Batmobile.


SOURCE: http://news.morningstar.com/index/indexreturn.html


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