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Putting Recent Market Volatility in Perspective

There’s no sugarcoating it, today was nasty. And this week for the global stock markets wasn’t any better.

But the last several years have been relatively calm for the U.S. stock market. This bull market has gone 1,418 calendar days without a 10% correction. This is the third longest such streak in the last fifty years, and it may have lulled many investors.

We realize that many of you are concerned about the recent market volatility, so we’ve included a few key market facts to help put these recent movements in perspective:

The market is down -5.8% on the week, near its low for the year. This represents a new intra-year decline from recent highs of -7.5%.

In reality, intra-year declines of 5% or worse are not unusual at all. In fact, it’s been 20 years since we experienced a year without at least a 5% decline

As shown below, a graph from JP Morgan’s quarterly Guide to the Markets titled, Annual returns and intra-year declines, this is one of the least volatile years in recent history:

Annual Returns

So what are some of the major factors driving this volatility?

This market weakness cannot be attributed to just one event but is likely the result of a few factors.

1) Uncertainty around the timing of a Fed interest rate hike continues to spook the markets. Markets hate uncertainty, and this is a key area of confusion.

2) The narrative around weaker growth in China and emerging markets more broadly has spilled over into commodity and currency markets.

3) The Oil Saga. The price of oil continues to slide and producers keep pumping, adding to an already oversupplied market.

4) A general lack of economic data has created a bit of a news vacuum, causing increased focus on the aforementioned developments.

While we recognize this volatility is unnerving, we are not the least bit concerned about the long-term prospects of the U.S. economy or the equity markets. We remain calm and confident in the face of this short-term pull back.

For investors, now is a time to remain steadfast, keep recent events in perspective, and rely on the power of diversification. Losses are temporary, but the long-term trajectory of the markets will continue upward.


Source: JP Morgan Asset Management

Mike Minter

Mike develops investment portfolio allocations, handles trading and rebalancing, and conducts research and analysis as a Portfolio Manager and Financial Advisor for the firm. As a perpetual student of investing and the markets, Mike considers himself obsessed with the subject. Mike has earned the CERTIFIED FINANCIAL PLANNER™ (CFP®) and Certified Fund Specialist® designations. He is also an active member of the Houston chapter of the Financial Planning Association (FPA).   Read Mike’s Profile HereRead More Articles by Mike

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