Record Start, Average Finish But not a good record. The first two weeks of 2016 marked the worst start for the S&P 500. Ever. The entire month of January was the ninth worst since 1928. For some of you, a root canal may have been preferable. And it wasn’t just the S&P 500; it was all stocks across the globe, of all sizes. Fast forward to mid-year, and the United Kingdom votes to withdraw from the European Union – an event known as “Brexit”. More turmoil, though not as bad as January. History tells us that the stock market as …
The Folly of Forecasting
“The ability to foresee that some things cannot be foreseen is a very necessary quality.” The French philosopher Jean Jacques Rousseau probably didn’t know how relevant to investing his words were. But over 250 years after he wrote them, a client reminded us of Mr. Rousseau’s genius when that client sent us this, back in August: This is a Goldman Sachs forecast, issued in early August. Our client was very nervous that Goldman Sachs believed the stock market would be down 8.8% over the next three months. Fast forward… The sun is shining, our client is happy, and, despite the …
What Are The Odds?
A Look at Daily Market Returns Our last piece on market volatility prompted questions about the ranges of market returns, particularly in a given day. We collected Dow data from 1928 through yesterday to get the answer. Take a look… This graph represents 22,130 days of daily returns, most of which were uneventful, with the Dow moving no more than 2% either up or down. Only about once every three weeks on average do we experience a daily return greater than 2%, whether it’s positive or negative. The worst day was “Black Monday”, October 19, 1987, when the index dropped …
Is Volatility Normal?
The short answer: yes. But let’s add some perspective. You may read a lot about volatility – or how much the market goes up and down – being the “new normal”. Another short answer: untrue. Volatility has been an integral part of the investing experience since the very beginning. As a perceived risk, it’s one of the reasons stocks have produced, and are expected to produce, higher returns than less volatile assets like bonds and cash. Risk equals reward, so they say. A client recently mentioned how the market seems to go up and down much more than in …