(This post was sent out to clients earlier in the month)
Market Commentary – February 2018
Volatility is back. And that’s not necessarily a bad thing.
Last week and this week, we’ve seen some quick swings in the market that we haven’t seen in a while. As an advisor, I fully expect to see volatility in the markets. When that doesn’t happen over a long period of time (like all of 2017), the stage is then set for some sudden moves like we have been seeing. Think of it like this: one can only stretch a rubber band so far before it snaps back.
In 2017 we never saw a pull-back in the S&P 500 that was greater than 5%. That was an anomaly that hasn’t happened since 1995 according to a recent MarketWatch article. (https://www.marketwatch.com/story/heres-another-milestone-the-sp-500-could-surpass-this-month-2018-01-03)
In 1996 volatility returned with 7% drop in February and a summer dip of 11%, yet the S&P finished the year up over 20%. In terms of volatility, 1996 is much closer to the norm than 2017 was, but more volatility doesn’t necessarily mean that, by the end of 2018, markets will be down. It just means that we should expect that the normal ups and downs of the market are returning and set our expectations accordingly.
Another interesting development occurred in 2017 when the universe of ETFs (Exchange Traded Funds) had the largest inflows of money in their history. Inflows topped $464 billion, which beat the previous record in 2016 of $288 billion. (https://www.marketwatch.com/story/etfs-shattered-their-growth-records-in-2017-2017-12-11) January 2018 also set a record for monthly inflows. The cash influx is coming from several different places, like out of mutual funds. But there is also a lot of money that has been sitting on the sidelines, and brighter economic prospects in 2017 may have inspired investors to put their money to work in the market. Regardless, new money coming into the market is typically a good sign of investor confidence.
Lastly, I wanted to share a musing that I have had recently. This recent correction has been swift and that caused some people to make some bad decisions. But I was thinking, If this correction had been blended into the markets over the course of last year, then 2017 would have historically been just another decent year and many of those bad decisions might not have ever happened. As hard as it may seem at times, remaining calm in the face of stock market storms is always the best course of action.
Recent Comments