Like past bull markets, this most recent one since 2009 has had relatively little daily volatility, which we define here as moves greater than two standard deviations from the mean daily return. Specifically, we look at two standard deviations to the downside during a calendar year basis as compared to its historical average over the last few market cycles. This means the S&P 500 would’ve fallen about 2.2% or more in a single day. The last three bull markets are roughly visualized through the valleys in this negative volatility, which is indicative of the smooth ride up investors have had.

Not surprisingly, the majority of total positive and negative two standard deviation moves have been on the negative side at about 60% of the time since 1990, or in days, about seven trading days per year. In 2018, investors experienced significantly more downside volatility than in recent years; however, within the context of bear market years, this move is not so bad. While this is an interesting story from the data, ultimately macroeconomic and geopolitical developments will undoubtedly determine if this bull market has any life left.

Print PDF

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

It has been a wild ride since the equity market peaked on September 20th. Almost three months later, the S&P 500 is down 14.0%, marking the second market correction this year. Corrections occur when the market falls more than 10% from its market peak. Investors have been caught off-guard by this year’s volatility given last year’s slow and steady rise. While we predicted that 2018 would most likely be more eventful than 2017’s record-breaking tranquility, we could not predict to what extent. Year to date, we have seen market movements in excess of 1% in one out of every five days this year, and four of the five largest Dow Jones Industrials Average point drops ever despite strong positive economic data within the United States.

Market pauses occur frequently. Since 1920, the S&P 500 has on average experienced a 5% pullback 3 times a year, a 10% correction once a year, and a 20% bear market decline every 3 years.¹ What’s important is that corrections are merely temporary movements and have little impact on returns over the long-term. Since the bottom of the market in 2009, the S&P 500 has returned over 350% cumulatively and 15% annualized. The chart above shows the S&P 500’s cumulative returns after every correction this market cycle.

Markets are constantly under pressure from external events; recent history includes 2010’s Sovereign Debt Crisis, the 2011 U.S. debt downgrade, and fear of slowing Chinese growth in the winter of 2016. Today, market returns are almost flat since February’s market correction. Returns have eventually rebounded after each correction (including the global Financial Crisis) due to the underlying fundamentals of the economy and not elements of fear.

We acknowledge that while global growth did not meet investors’ expectations in 2018, the United States continues to meet or even exceed expectations. Third quarter GDP came in at 3.5%, unemployment is a low 3.7%, personal income is up, corporate earnings are strong, and inflation is a healthy 2.2%. The fundamental backdrop is still positive for the U.S. and is a stark contrast to the market’s performance quarter-to-date. While the recent volatility can be uncomfortable, waiting for market performance to realign with economic fundamentals can be rewarding over the long-term.

Print PDF

¹ Fidelity Investments, Viewpoints, November 5, 2018

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.