Our Perspective on Recent Market Events

The stock market delivered returns well above average in 2017, and then continued to rise rather steadily throughout January.  As most of you know, over the past few days the market reversed course, and did so in a somewhat shocking fashion.  The US stock market was down about 2% in value on Friday and then the Dow dropped by 1,175 points on Monday – the largest one day point decline in history.

While the “largest one-day point decline” is an enticing news headline, the reality is that when we look at the drop in terms of percentages, we see that we have experienced many declines that were more significant.  As the market inevitably climbs to higher levels in the future, it will also inevitably continue to set new records for largest one-day point gains and declines in the future.

In times of more extreme market volatility, it is often helpful to take a step back and put some context around the current events.  With the down turn of the last few days, the stock market has returned to levels it attained roughly two months ago.  Also, it is helpful to realize that 2017 was a bit of an odd year in that there were no daily market declines of 2% or more.  Comparatively, there were 5 such days in 2016 and 6 in 2015.

We thought we would pass along the article below, as it offers some context for the current events and their effect on the market, while also looking at the broader picture:

https://www.nytimes.com/2018/02/05/upshot/context-matters-the-stock-market-drop-is-less-scary-than-it-seems.html

Recent events are also a reminder of why stock market investors have been rewarded with much higher returns on their money as compared with more conservative alternatives.  The stock market investor is compensated, over time, for being able to tolerate the volatility and uncertainty in short term periods.

Ultimately, a diversified approach between stocks and bonds which is in align with your risk tolerance and time frame, and the discipline to maintain the strategy through good and bad times, are the key drivers of a successful investment experience.

As always, please feel free to reach out with any questions or concerns.