The stock market in February began by showing the signs of another brutal month with the S&P 500 at one point being down 6%. Almost half way into the leap month, the momentum reversed course to make back some of the losses.1 Treasuries and cash made modest gains, so most investors are still negative for the year. With little surprise, it was oil and the primary elections that took up much of the front page headlines.
There were many other economic headlines that were buried in the news. Strong jobs reports, weak GDP growth, high consumer sentiment, falling interest rates…the list goes on. This barrage of positive and negative economic items has created an interesting phenomenon. Ever since the Dow Jones has swelled past 10,000 (first in 1999, most recently in 2010), we have become somewhat accustomed to 100+ point movements on any given day. Now that the Dow is in the 16,000 range, a 100 point day isn’t terribly exciting. However, what is interesting is the number of 150, 200 and 300 point days (i.e. more than 1% moves) witnessed over the last several months.
The same phenomenon is seen in the more diversified S&P 500 index as well. As the chart to the right shows, we have had more 1% moves (both up and down) over the last three months than during the correction last fall. We are currently at a level where just about every other day experiences a 1% gain or loss. Considering stocks average a growth rate of around 10% over the course of a 12 month period (no, there is no guarantee), this amount of volatility from day to day is quite surprising… and unsustainable in my opinion. If you run the numbers for the S&P 500 back further, this sheer volume of large daily moves hasn’t been seen since 2011 when we were still trying to emerge from the financial crisis. These times are interesting times, but nowhere near the crisis level experienced during the 2008-2012 period in my opinion.
This is all to say that the market is excitable right now and that generally leads to nervous investors which can further fuel the fire. I would expect to see some consolidation as the economy continues to meander along the slow growth path and eventually see a continuation of the upward market trend. There will surely be more bumps in the road ahead, which makes diversification all the more powerful.
Contact us if you have had enough of these bumps, so we can see how a more conservative approach affects your financial goals.
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