What to Expect from Here

What to Expect from Here

Conor

Going back to 1950, the average daily move for the S&P 500 is +0.3%. During that time, the index is up over 14,000% (excluding dividends). They say that the market takes an escalator up and an elevator down. Nifty saying, but I think the 3-year chart tells the story more vividly:

The level of volatility we are experiencing right now is unprecedented. This chart shows the daily percentage moves of the S&P 500 since October:

It looks like the EKG of someone having a heart attack!

Does the craziness of the current market environment mean you should panic? Of course not. Any financial plan worth its salt models the impact of large market declines. What it probably doesn’t model is the implications of panic selling. If you think it’s prudent to sell out of stocks now, wait out the inevitable further decline (the news is seemingly only getting worse), and get back in when the dust settles, I encourage you to look to 2009 as a guide.

In the graph below, red marks the market bottom in March 2009 when unemployment was 8.7%. From there, markets began rallying, quickly, but economic data wasn’t getting any better. In fact, it was getting worse – the unemployment rate topped out at 10% in October (blue). But the rally between March and October was +53%. 

How is this possible? It’s because, for the most part, the market doesn’t care whether news is good or bad. The market cares about better or worse. Expectations about the future are factored into today’s prices, so even terrible news like unemployment reaching 10% can be met with positive returns if the market was pricing in 11% unemployment. Due to this expectations game, if you attempt to wait for the dust to settle, you’ll likely miss out on the rebound. For a long-term investor, significant declines are manageable because they are accounted for in your financial plan. Missing out on a 50% rally because you abandoned the plan in a moment of stress…is not.

Stay safe and stay positive. The ingenuity and resilience of the human spirit is undefeated. We’ll get through this.


Disclaimer: Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. 

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