Keep Calm & Stay the Course

You may have heard that markets have had an eventful couple weeks. As of this writing, the Dow Jones Industrial Average has dropped over 2,500 points from its record high on January 26th 2018. Is this sell-off simply a correction or the start of a bear market? It’s impossible to tell at the moment, but we can take a step back to understand what’s been so unusual about markets over the recent past.

What’s extraordinary about markets over the past year isn’t the past few days—it’s that an event like this hadn’t happened sooner. Volatility had sunk to record lows. The S&P 500 had gone 112 trading days without closing down 1% in a single day—the longest streak in over 30 years. The last 2% decline was in 2016, 349 trading days ago—again, the longest streak in over 30 years. The US equities market had become like a winter without snowstorms, or a dog that wouldn’t bark.

Even gains had become monotonous. From September to January the S&P 500 gained 14 percent without a single up day exceeding 1 percent1. We believe that the return of volatility represents a return of more normal market behavior, which has always had its ups and downs. 

Despite this recent turmoil, our long-term outlook has not changed, and neither should yours. Even with the current fall in February (through 2/8/18), the S&P 500 is down slightly for the year, coming on the heels of an impressive 21% gain in 2017. Relatively high valuations means that long-term domestic stocks should be expected to have modest future returns. Whether this would come in the form of slow and steady gains or more turbulent booms and busts is a question we cannot answer. But fundamentally, as we look over the past 6 weeks, the net movement of markets thus far isn’t a surprise—it’s just been a bumpier ride than we’ve gotten used to.

— JMS Team

Sources:
1.S&P statistics are from “The Signs of a Market Blip of Something Worse,” by Barry Ritholtz, in Bloomberg View on February 5, 2018.

Disclosure:
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting and legal or tax advice. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.