Markets rise, markets fall – Is this time different?
The recent return of market volatility has unnerved investors. We offer the following commentary on staying the course and not making sudden changes to your portfolio.
Through January, the equity markets had been exceptionally and unusually strong for years. The S&P 500 Index climbed over 200% since March 2009. In January of this year alone, it gained 5.6%. Other markets followed suit, with the Dow up 5.8% and the Nasdaq Composite advancing 7.4%, for the month.
Then, last week, the situation changed. During the first eight days of February, the markets fell sharply, then rallied making up much of the ground lost, only to reverse yet again.
To many investors this is somewhat unfamiliar territory and, for others, serves as a vague reminder of times all but forgotten. We have become accustomed to rising markets with low volatility, seeing balances go up month after month. We haven’t seen a significant market decline since 2011, when the S&P 500 Index fell just shy of 20%.
Although the sharpness of this most recent downturn might feel unsettling, it’s actually pretty normal. The volatility that we are experiencing is, simply put, part of the market cycle.
Moving from one news source to the next, everyone has an opinion on what might be causing the gyrations in the markets. There are some who blame a handful of hedge funds that use financial instruments to make levered bets on volatility futures. Others express concerns over wage growth and whether or not it signals forthcoming inflation. Another group believes the main culprit to be computerized trading.
Most analysts agree though, that the fundamentals underlying the US economy are solid and continue to strengthen. Unemployment is low. Corporations are more profitable than ever. Fuel prices are highly affordable. Although interest rates are likely to continue to trend higher, they are still at historically low levels.
It is impossible to know how long the current market volatility will persist and we may well continue to see gyrations in the markets over the near term.
What should you do in the meantime?
Stick to the plan (and call us). We believe, as we always have, that a prudent investor—one with a well-conceived, diversified and properly-monitored asset allocation—will do well in the long run. Not only are short-term moves to “time the market” rarely rewarded, history shows that they are often punished.
If the asset allocation upon which we and our clients agreed made sense before market volatility began, it also very likely makes sense now. Our goal is to position clients with appropriate asset allocations that allow them to sleep at night, and to reach their goals over the longer term.
We are always happy to discuss your situation in more detail, so please don’t hesitate to contact us with your questions or comments anytime.
The information provided above is general in nature and is not intended to represent specific investment or professional advice. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship. Diversification and asset allocation do not ensure a profit or guarantee against loss.
Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:
Laurie Gerber, Client Development
GW & Wade, LLC