An Overdue Correction, Not A Bear Market | Trust Point
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An overdue correction, not a bear market.

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Updated February 7, 2018

Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.

Equity markets have a tendency to take the stairs up but the elevator down. In other words, market corrections tend to be more violent and unsettling than market advances.

As of Tuesday’s close (2/6/18), major market indices had sold off by about 6% from their recent highs.

The recent correction in markets has created some unsettling headlines.  However, it is important to put things in perspective.

From a volatility standpoint, it had been quiet, too quiet!  The biggest correction in the S&P 500 last  year was not even 3%. In fact, 2017 was the least volatile year for U.S. equity markets since 1928. A 6% correction is not unusual and should be expected at least once per year. Since 1980, the average intra-year drop from peak to through has been around 14% (see chart below).

Annual Returns and Intra-year declines

From a return standpoint, the recent market correction has almost wiped out all of the gains made in the first few weeks of the year but the high double-digit gains of 2017 still remain.

As a rule of thumb, it is important to remember that over the short-term, traders drive stocks. Over the medium to long-term however, investors drive stocks. Investors care about business cycles and the fundamental conditions that drive economies, profits and interest rates. In that regard, the fundamentals remain exceptionally strong and the near-term chances of a recession are still very low.

 In periods of heightened volatility, we like to remind our clients that:

  • Volatility doesn’t prevent someone’s ability to achieve long-term financial goals.
  • Declines in markets are healthy. They create opportunities and allow value to be restored which attracts new  buyers.
  • Adding to risk (as opposed to taking risk off the table) when markets are down has proven to pay off over time. The chart below is a perfect example of this.

ARe you an opportunistic or apprehensive investor? Bear market vs. Natural correction

We are very thankful for the trust and confidence you have in us.

 

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Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.