Recent Markets In Perspective

Picture this:

We’ve just come back from two week vacation. It was fantastic; white sandy beaches, turquoise waters, a cold drink, and we even splurged on one of those fancy butlers at the all-inclusive resort. Simply put, it was absolute paradise. We didn’t have to make a decision or think critically for two whole weeks. Now we are back home and things immediately return to normal. We are back to morning alarms, traffic, making our own coffee, and the shopper in front us is arguing with the cashier over expired coupons. We have all lived some version of this story in our lifetime and I think it describes the current investor sentiment in the US stock market!

Since 2008, the US has been riding one of the longest bull markets in history. We emerged from the lows of the Great Recession of 2008-2009 to a stock market that has since graciously returned about 260% through 2018. As always, there were big ups and big downs, but to a far lesser degree than history has groomed investors to expect. Like in our vacation scenario, things have been so good for so long the return to the real world becomes a strenuous adjustment. It’s not like Vegas where you spend two nights then beg to come home. We’ve been in a hammock on a beach, happily sipping piñas for nearly a decade.

Take the graphic below where we observe the number of large daily swings (+/-2%) in the S&P 500 since 2000. One can clearly see the large swings in daily market values during the Dot.Com Bubble (2000-2003) and the Great Recession (2008-2009). For comparison, the average number of +/-2% trading days since 1950 is eleven. In just a few short years later, we hit 2012 and we as investors were quick to kick back in our metaphoric island paradise. We went from a period of the most extreme number of market swings in recent history (2008-2009) to the exact opposite (2012-2017).

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It was like being at Disneyland and going from Indiana Jones to It’s a Small World. Now we are stepping off It’s a Small World and we are barely fit to handle Pirates of the Caribbean because it’s dark and there are a few cannon blasts.

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Maybe it’s unfair to define the recent volatility of the S&P 500 with a Disneyland simile but the point is it is easy to forget big swings in the market have and will always happen, especially after the bull run we’ve experienced. An uptick in volatility doesn’t immediately mean recession. If we step back and give the recent volatility some much needed perspective, we come to find it has not been as damning as the financial media makes it out to be. Should we proceed into 2019 with caution? Absolutely. The volatility has increased substantially in Q4 2018 so we’ve got some things to watch out for, like we do in every late-growth cycle economy. History has shown us markets are both volatile and trend positively over time. Therefore, we must take the ups with the downs and the good with the government shutdown, trade wars, interest rates, hard Brexits, soft Brexits, border walls, investigations, data breaches, CNBC, green, yellow, blue, orange, pancake, [insert ridiculous headline here], etc.

The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Securities offered through Securities America, Inc., member FINRA/SIPC, Betsy Merritt & Tyler Aubrey Representatives. Advisory services offered through Securities America Advisors, Inc. New Break Financial and Securities America are separate companies. Securities America and its representatives do not provide tax or legal advice. It is important to coordinate with your tax or legal advisor regarding your specific situation.