Holiday Volatility

December 21, 2018

So far this December is shaping up to be a rough one.  In fact, it’s on track to be the worst one in 90 years.  We understand if this is causing some questions to stir around in your mind.  After all, 2018 at times offered stock returns that were looking quite good, only to lose steam and close the year on a negative note.

There are several newsworthy items out there that will likely continue to make the ride a bumpy one.  While that doesn’t necessarily mean the bumps have to lead to a further decline, it does mean that the feeling of “here we go again” might not go away.  As we wrap up the year, we wanted to make sure to provide a few thoughts to you about this most recent volatility:

The drop

We’ve seen the S&P 500 drop almost -16% over the last two and a half months.  This officially passed “correction” territory a couple weeks back.  Several other parts of the market, such as small stocks, international stocks, and emerging market stocks, have declined even further at some point during the year pushing into “bear” territory.  While that is painful, it also makes the valuation of the market more attractive which can help boost potential future returns.

Diversification is helping right now

On the stock side, while big U.S. stocks are down nearly -16%, other parts of the market are holding up a little better.  In fact, emerging market stocks are down less than half that amount.  An even better story is bonds.  The bond market is up over a percent in that same stretch of time, doing exactly what we want them to do in a tougher stock market environment.

Back to normal

While volatility has resurrected itself, that truth is unfortunately normal.  This alone doesn’t cause long-term concern from our vantage point, but certainly may be causing some short-term headaches for you.  Reward (return) comes from the stock market because of the fact that there is a premium paid for taking risk.  Risk can be great over the long-term, but tough in the now.  It’s like I’ve been told before about parenting – “The days are long, but the years are short.”