{"id":8156,"date":"2019-08-12T15:16:10","date_gmt":"2019-08-12T15:16:10","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8156"},"modified":"2022-02-26T13:07:14","modified_gmt":"2022-02-26T13:07:14","slug":"is-the-recent-market-volatility-a-warning-sign","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/is-the-recent-market-volatility-a-warning-sign\/","title":{"rendered":"Is the Recent Market Volatility a Warning Sign?"},"content":{"rendered":"\n<p>The S&amp;P 500 suffered its biggest decline of 2019 on Monday\n(August 5), declining -3.3% while the tech-heavy Nasdaq fell -3.8%.<sup>1<\/sup><\/p>\n\n\n\n<p>When the market takes a sudden and sharp turn, investors often\nget rattled and start questioning their asset allocation. Getting worried and\nsecond-guessing is a normal, natural, and understandable response. But if you\u2019re\nfeeling the urge to react and \u2018do something about it,\u2019 I\u2019d strongly urge you\nreconsider. <strong>If your goals have not\nsignificantly changed in the last week, then in all likelihood, your investment\nportfolio shouldn\u2019t change either. <\/strong><\/p>\n\n\n\n<p>Basing an asset allocation decision on short-term market\nmovements is almost always harmful to an investor\u2019s pursuit of their long-term\ngoals, in my experience. But I also have data to prove it. The research firm\nDalbar consistently finds that equity fund investors, on average, are\nsignificantly underperforming the S&amp;P 500, bonds, commodities, and even\ninflation over long stretches of time. The reason: <em>poor market-timing decisions<\/em>.<sup>2<\/sup> Being patient and staying\nfocused on where you want to be 10, 20, or even 30 years from now is a better\nresponse, in my view. <\/p>\n\n\n\n<p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;\n<strong><\/strong><\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_12&amp;content=stock_market_outlook_report\">Volatility is Back &#8211; Base Your Investing Decisions on Hard Data!<\/a><\/strong><\/p>\n\n\n\n<p>Do not let volatility force you to make hasty investment decisions. Instead, keep your eye on important economic indicators with our Stock Market Outlook Report. <\/p>\n\n\n\n<p>This 22-page report is packed with some of our key forecasts and facts\nto consider as you look towards the remainder of 2019:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Which sectors are hot\u2026and\nwhich are not<\/em><\/li><li><em>2019 end of year forecast\nfor the S&amp;P 500&nbsp;<\/em><\/li><li><em>Our view on global markets<\/em><\/li><li><em>Small cap vs. large cap\nreturns<\/em><\/li><li><em>Our view on the odds for a recession\nin 2019&nbsp;<\/em><\/li><li><em>What produces optimism for 2019<\/em><\/li><li><em>And much more\u2026&nbsp;<\/em><\/li><\/ul>\n\n\n\n<p>This report is free but also time-sensitive, so if you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br><\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_12&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Stock Market Outlook Now<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_12&amp;content=stock_market_outlook_report\">3<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;\n<strong><\/strong><\/p>\n\n\n\n<p>Before I dive into some of the triggers\/causes of recent\nmarket volatility (which I\u2019ll do below), I want to offer readers a reminder of\nhow downside volatility and market corrections look. Even if you look back on just\nthe past two years, there have been three fairly sharp pullbacks, and one of\nthem flirted with bear market territory. Is it possible the current downside\nwill persist and take us into double-digit territory? Of course. But recent\nhistory shows that the market recovered after each pullback <em>as the economy continued to grow<\/em>. Looking\nahead for the balance of 2019, we continue to see an economy poised to grow,\neven if just at a modest pace. <\/p>\n\n\n\n<p>In the three pullbacks shown below, the first and second\nones lasted about two months and the smaller decline transpired in about a month\u2019s\ntime. Which is to say, we should reasonably expect the current downside\nvolatility to continue for some time.<\/p>\n\n\n\n<p><strong>The S&amp;P 500 Since\nJanuary 1, 2017 \u2013 3 Significant Pullbacks <\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/8.11.10_MOTM_-_Volatility-1024x424.png\" alt=\"\" class=\"wp-image-8157\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong><\/p>\n\n\n\n<p>Another takeaway from looking at the chart above is that\nequity market recoveries often happen in \u201cv-shaped\u201d patterns, which means in\nmany cases, the recovery can happen just as quickly as the decline. It is for\nthis reason that trying to time a market correction is such a difficult, and in\nmy view, a dangerous endeavor. Mistiming your re-entry even by one day can have\na substantial impact on total return. In my view, the opportunity cost of\nmarket timing is simply too high. <\/p>\n\n\n\n<p><strong>Why Did the Market\nSell Off?<\/strong><\/p>\n\n\n\n<p>One of the reasons I\u2019m convinced this downside volatility is\na correction (and not a bear market) is that the most-cited source of the\nvolatility is an old story: the U.S. \u2013 China trade dispute. Though there are\nnew developments in the trade impasse \u2013 and to be sure they are not good developments\n\u2013 this is still a story that\u2019s been out in the open for over a year. The market\nmay be repricing the negative developments, but I do not suspect the economic\noutlook for growth has shifted considerably to the downside. Trade accounts for\nless than 10% of U.S. GDP. <\/p>\n\n\n\n<p>So, what changed? Late last week, the Trump Administration\nsaid they planned to add a 10% tariff on an additional $300 billion of Chinese\ngoods, and this week the Chinese responded by allowing its currency to depreciate\nbelow 7 yuan to the dollar \u2013 a considerable decline. China also halted imports\nof U.S. agricultural goods, which runs counter to earlier indications that they\nwere planning to increase purchases. The U.S. responded by labeling China a\ncurrency manipulator, which is largely a cosmetic move today, but still will\nrequire a year of negotiations and may involve some penalties on China if\nproved.<sup>5<\/sup> <\/p>\n\n\n\n<p><strong>Bottom Line for Investors\n<\/strong><\/p>\n\n\n\n<p>It has become clear over these last few months that the\nprobability of a grand trade deal in 2019 is approaching zero, which I believe\nthe market has already priced in. Perhaps the best we can hope for, in my view,\nis no more negative surprises and constructive dialogue going forward. Time\nwill tell, but our best-case remains that the U.S. economy will continue to\ngrow in 2019. I think patience is warranted now as a result, even if the\nvolatility continues (which I believe it will).<\/p>\n\n\n\n<p>At the end of the day,\nmarket volatility often serves as a wake-up call for investors, in some cases\ncalling into question your asset allocation and whether you may have too much\nrisk\/exposure in your portfolio. That\u2019s a normal and even healthy response, in\nmy view. Volatility can serve as an opportunity to review your asset allocation\nand make sure your portfolio is diversified and aligned with your long-term\ngoals. <\/p>\n\n\n\n<p>In times like this, I believe it is best to focus on the fundamentals instead of getting caught up in perceptions. So, to help you do this, you are invited to <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_8_12&amp;content=stock_market_outlook_report\">download our Just-Released Stock Market Outlook report.<\/a><\/strong><\/p>\n\n\n\n<p>This Special Report is\npacked with our newly revised predictions for the remainder of 2019 that we\nbelieve can help you base your next investment move on hard data. <\/p>\n\n\n\n<p>For example, you&#8217;ll\ndiscover Zacks\u2019 view on:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Which sectors are\nhot\u2026and which are not<\/em><\/li><li><em>2019 end of year\nforecast for the S&amp;P 500&nbsp;<\/em><\/li><li><em>Our view on global\nmarkets<\/em><\/li><li><em>Small cap vs. large cap\nreturns<\/em><\/li><li><em>Our view on the odds for\na recession in 2019&nbsp;<\/em><\/li><li><em>What produces optimism for 2019<\/em><em><\/em><\/li><li><em>And much more\u2026&nbsp;<\/em><\/li><\/ul>\n\n\n\n<p><em><br> <\/em>If you have $500,000 or more to invest and want to learn how you may be able to prepare your portfolio for what\u2019s to come, click on the link below to get your free report today!<sup>6<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Mitch examines whether the recent market decline is a correction or beginning of a bear market. <\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8156","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8156","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8156"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8156\/revisions"}],"predecessor-version":[{"id":10728,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8156\/revisions\/10728"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8156"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8156"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8156"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}