Advisor Voices: Some Perspective on the Market's Recent Swings
By: Kristi Wano, Senior Wealth Advisor
Like Top Gun, mom jeans and the music of Queen, market volatility is making a comeback in 2019. We are now in the 11th year of a record-setting bull market, but virtually every week seems to bring another plunge in the stock market, followed, just as often as not, by an equal and opposite rally.
What should investors make of the moves and what should they do in response? They can start by making sure they keep volatility in perspective. Following are a few points to bear in mind about equity market volatility:
- A couple hundred point drop in the Dow isn’t what it used to be. It was BIG news last year when the Dow Jones Industrial Average lost 1,175 points in a single trading day. However, it’s worth remembering that because the market has grown so much over the last decade, what were considered big moves 20 or 30 years ago, aren’t so big anymore. So, in percentage terms, that record 1,175 point one-day drop in the Dow doesn’t even register in the top 20 all time percentage drops.
- Volatility is the norm and recent years have been the exception. Between 1990 and 2011, the S&P 500 notched an average annual gain of 7.6%, while the average daily close for the VIX, a closely watched gauge of market volatility, was 20.6%. On the other hand, in the following seven years, from 2011-2018, the average annual gain for the S&P 500 was 10.9 percent, while the daily VIX average was just 15.2%. After years of relatively benign market movement, it is entirely understandable if investors have forgotten what market anxiety feels like.
- Bulls are historically more powerful than bears. Whenever the market gets a little scary, it’s worth taking a step back and put stock market performance in a historical perspective. In an apples-to-apples comparison, each bull market since the Great Depression resets to a baseline followed by a relatively longer and more powerful rally
So then do nothing? Just ride out the volatility? Not exactly.
For most investors it pays to keep a long-term perspective. Often the worst thing you can do when stocks are falling is to sell into the drop, thereby missing the rebound. But if volatility is indeed back, now might be a good time to check in with your advisor, discuss your goals and any important changes to your circumstances, and make sure your portfolio is suited to your current situation.
 The VIX Index is based on options of the S&P 500 Index, considered the leading indicator of the broad U.S. Stock Market. The VIX Index is recognized as the world’s premier gauge of U.S equity market volatility.
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