Management Update on Volatility (10-11-2018)
Looks like markets are taking a much needed breather. Yesterday (October 11th), the S&P 500 dropped – 3.29%. From September 20th to October 11th the S&P 500 dropped -6.91% (Ycharts Data). So what happened?
This was likely the result of some adjustments relative to higher interest rates. Similar to the decline in January/February earlier this year, we would expect a very typical -5% to -10% decline. In January/February we saw an official -10% correction as rates rose in similar fashion. Given the backdrop of a very solid economy, we view this as a continuation of increased volatility while markets adjust to slightly higher rates and reduced valuations.
While this decline again feels fast and furious, we find it important to place in context of long-term expectations. Since 2009 we have seen -10% declines in 5 of the 9 years (2010, 2011, 2015, 2016, 2018). In all cases the market took a slight step back and then roared forward. Below chart helps serve as a good reminder about market volatility.
Of course anything is possible in the markets. We have spoken the past 2 years about the increasing risk of larger declines ad nauseam. Will rates lead to a recession? Eventually they will if the FED keeps hiking without regard. Will the trade tensions impact our economy negatively? Absolutely they will have some negative impact if left unchecked. However, it is still more likely that the economy remains in late stage territory and we are simply experiencing late stage volatility.
Regardless of what transpires, your plans are designed to weather short-term storms such as 2010, 2011, 2015, 2016 and the recent hiccups. If they turn into larger declines, rest assured we are diversified to weather the big storms relative to your plans design and risk level. For income clients we remain laser focused on keeping the income and income growth on track. For growth clients we actually would like to see more shake up in the markets to provide improved buying opportunity. If markets rebound back, we will celebrate. If markets continue down, we will go to work and see if we can capture some opportunity for more pay raises and higher long term growth rates. Either way, our plans are prepared for the future, no matter what the market tosses our way!
Evergreen Wealth Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.