Where’s the &*%$! Santa Claus Rally?

By: HD Wealth Strategies
A message regarding December 2018 Volatility

Investors were hoping for a strong December to close out what has been an emotionally difficult 2018.  If you can remember as far back as January of this year, the S&P 500 was up 7% by January 26th.   With the tailwind of strong economic data, it seemed the year was off to a repeat of 2017.  Then, the realities of growth surfaced.  Burgeoning inflation began to spark talks of rapid interest rate increases.  By March we began to hear more about the prospects of a trade war.  Stocks meandered their way back to record highs as recently as October only to succumb to the second correction of the year, a correction we are still experiencing.  The markets are certainly expressing an angst about what is debated for hours on end on the various financial news shows.  Through the year, economic data remained strong and corporate revenues continued to grow.  Despite all of this positive news, it has failed to encourage investors  of all types of asset classes.  

We know volatility is not a unique phenomena, but that never makes it feel better when you’re in it.  Just this week we completed a series of interviews with the S&P Dow Jones Indices in New York.  We answered questions about the challenges we face staying the course in moments of volatility.  The moderator asked, “Is this market volatility the biggest challenge you face today?”  Steven Higgins , Financial advisor and Principal of HDWS, answered, “ It is the biggest challenge but not in the way you might think.”  He continued, “ The challenge is keeping clients focused on their own long term goals, instead of the headlines.”  It’s easy to be captivated by the media’s second by second dissection of all things financial.  The chaos legitimizes some of the emotional feelings people have and can lead to absolutely terrible decisions.  “Recency bias is real,” says Higgins.  Recency bias is the prioritization of events that have occurred in the immediacy while discounting historical data and realities.  In short, recency bias makes you think, this time is different. 

Here are a couple of data points that may help dissuade some emotion and “recency bias.”

• While we have had a collection of -10% corrections over the last few years, the last time we saw markets retract this much was in early 2016.  That’s right, less than three years ago.  U.S. stocks were down about -14%. Today, we are almost 24% higher than the bottom of the 2016 correction.  

• 2018 is likely to be the first negative year for the S&P 500 since 2008 and only the 6th in the last 30 years.  In that time, only once has a negative year followed another (2001-2002).  The “Great Recession” experienced just one negative year.  

• The average return of the S&P 500 in years following a negative period was over 28%.  Obviously, no guarantee of any future results.  

• The average negative year was -16.63%.  As of today, the S&P 500 is down about 8% for the year.  

During the New York interviews, Allie Schmidt, Financial Advisor, CFP®, CPA said, “ These volatile markets give us a chance to not only stress test our portfolios, but to stress test our clients as well.”  She added, “ Our clients know that volatility is common, but in the moment we owe it to our clients to do everything we can do to stay on the course we have prepared and keep them on track”

Our clients have worked hard to prepare themselves for the long road towards meeting their goals.  This is one of many volatile markets we have faced together and there will be many more.  As you celebrate this holiday season, enjoy your families and remember the importance of why the future needs you to be steadfast today.  Happy Holidays!

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through HD Wealth Strategies, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Financial Data Sources: Y Charts