Since the start of the fourth quarter, volatility has become the new normal in the market. According to The Wall Street Journal (WSJ)*, over the past month the Dow Jones Industrial Average (Dow) has averaged a 600-point intraday swing, with that swing never going below 200 points on any given day. Volatility has a tendency to beget volatility, so the main thing that investors can count on now is that volatility will likely stay in the market.
The two charts below, provided by the Carson Group Partners demonstrate the volatility in the market. The first chart shows the S&P 500 (S&P) either going up or down by at least 1% each day. In the fourth quarter of 2018 there were 28 such days, well above the average of 20 per quarter.
The second chart shows the weekly returns of the S&P. After a quiet 2017 (and most of 2018), volatility has risen steadily since the start of the fourth quarter and continuing into the New Year and often the losing days are sandwiched next to the winning days. According the WSJ, “Take the day after Christmas, which saw the biggest ever point gain in the Dow Jones Industrial Average. The 1,086-point bounce followed a four-day preholiday stretch that erased nearly 1,900 points from the index.”
You may be wondering, what does this mean for my accounts? Should I reallocate to my portfolio into bonds or safe alternatives? The volatility can make even the most seasoned investors nervous. But, it generally makes sense to stick with your financial plan. According to Putnam Investments*, over the last 15 years, an investor could have tripled their investment by buying and holding the S&P. An initial investment of $10,000 would have grown to $30,000. But missing just the ten best days slashed that amount in half and missing the twenty best days eliminated all of the gains. In other words, just one half ½% of the trading days made all of the profits from owning stocks during a 15 year period. While the volatility may be unsettling at times, the idea is to generally stay with your plan and to look for opportunities when they present themselves. Call us with questions.
*Source: A Constant: There will be Volatility- written by Spencer Jakab, Published by The Wall Street Journal. January 5th/6th 2019.