In Light of the Recent Volatility
In light of the recent volatility (aka sharp decline), we thought we would send out a note highlighting some comments from others in our industry that we follow. We like the way they phrase things and the information they put out is always helpful to us.
From a great blog from Michael Batnick at The Irrelevant Investor
“A Few Thoughts on the Selloff – Everybody Be Cool”
“The S&P 500 is set to gap down a few percent this morning* leaving it ~9% off its all-time high but still up 9% on the year. I repeat, up 9% on the year. Those returns can be erased, but from returns and drawdown perspective, this is nothing. You all remember what 2022 was like.
Speaking of 2022, that year was so horrific for investors because the risk-off portion of their portfolio provided no stability. Bonds got hit just as hard as stocks did that year. This time around, bonds are providing diversification. Bonds are up 2% over the last four sessions.
Allow me to offer a positive outlook on what looks to be a very ugly day. This is an unwind: margin calls, leverage, selling everything, etc. I would much rather have this type of selloff than one that’s caused by earnings tanking and a re-rating in stock market multiples.”
It’s okay to feel anxious about all this, but giving in to fear is never a good strategy. Now is always a good time to have perspective. This selloff, while strong and painful, is a normal part of investing.
From a podcast from Dr. David Kelly at JP Morgan
“We live at a time when extreme voices get the most attention and so it is tempting, following a string of weak economic numbers, to yell the word “recession”. However, a balanced assessment of demand and supply suggests that we are, thus far, merely transitioning to slower growth. A slower growth path is a more vulnerable one, particularly because excessive monetary ease is more likely to weaken than strengthen the economy in the short run. Nevertheless, barring some outside shock, the baseline scenario should be a slowdown scenario, even as volatile markets remind investors of the importance of diversifying and paying attention to valuations.”
From an email from Katherine Wetzel and Robert Brendli at Natixis Investment Managers
“Bottom Line:
- Growth scare in full force.
- But as we always say, sentiment was offsides. Too bullish.
- That’s now being cleaned out.
- The weak hands have punted.
- De-grossing/de-leveraging from players over their skis.
- That’s exacerbating this sell-off.
- But let’s not swing too far to the other direction, either.
- The jobs market is slowing. Not crumbling. We are still adding jobs.
- Earnings are good. Just not meeting the ‘great’ expectations.
- Sentiment needed to right size.
- It’s doing that now.
- Don’t extrapolate this too far in the other direction.”
And lastly, from a Hartford Funds report:
“Remember, the glass has been more than half full, historically – If you’re swept up in volatility, remember that markets have been positive more often than not. In fact, stocks have turned in a positive return 66 out of the last 87 calendar years, which means they’ve been on the rise 76% of the time (see charts below).”
One-Year Holding Periods (Jan. 1, 1937–Dec. 31, 2023) // Stocks were up 76% of the time—66 up periods, 21 down
Five-Year Holding Periods (Jan. 1, 1937-Dec. 31, 2023) // Stocks were up 90% of the time—75 up periods, 8 down
Ten-Year Holding Periods (Jan. 1, 1937-Dec. 31, 2023) // Stocks were up 97% of the time—76 up periods, 2 down
Past performance does not guarantee future results. Equities are represented by the S&P 500 Index. Data Sources: Morningstar and Hartford Funds, 2/24.
We have said this to you all before, but diversification is the best defense in the face of sharp declines.
Please let us know if you’d like to speak further about your specific situation. Thank you for the trust you place in your Meridian Team.