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Gaining a Better Perspective on Recent Market Volatility

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

June 16, 2022

Global equity and bond markets have experienced heightened volatility over the last several months as elevated inflation readings and the prospect of higher interest rates has made the investment landscape appear treacherous.   

This increased volatility can certainly be unnerving for investors but it is not necessarily unexpected, especially for a mid-term election year.  Since 1980, the S&P 500 has an average intra-year decline of 14%.1 But the equity market drawdowns tend to be more severe in midterm election years, particularly in the months prior to Election Day.  Research from Federated Hermes Investors found that “Leading up to Election Day, stocks tend to experience a pronounced pullback – 19% on average – before rallying afterward”2 in midterm years. 

 Historically investors have typically been rewarded for staying the course through the temporary pain of volatility during midterm years. Federated Hermes Investors found that “the S&P on average has risen 32% off the midterm election-year bottom. And it has not declined in the 12 months following a midterm election since 1946.”3 

 

Avoiding the Temptation of Market Timing 

While it may be tempting for investors to try and time the market by selling investments following a market decline and re-enter the market when things feel safer, investors should note that timing the market with such precision is extraordinarily difficult.  JPMorgan highlights the pitfalls of a market timing strategy: 

 

  • “First, there is no guaranteed ‘signal’ to get out of the market, and market bottoms are only determined in hindsight. 
  • Second, the investor would need to buy in on the worst days during some of the most significant market drawdowns when loss aversion is at its greatest. 

 

As a result, it is hard to believe that someone could be smart enough to consistently miss the worst days while courageous enough to invest for the best days.”4 

 

Moreover, some of the days of best performance occur within weeks or even days of the worst days of performance and those good days are extremely important to recovering losses experienced on the worst days.  The chart below from JPMorgan shows the cost of missing out on the best days of performance. 

[+] Read More

market perspective stock market performance Economic Indicators Market Volatility

Help Protect Your Savings From Inflation Using I Bonds

June 2, 2022
In 1998 the US Treasury introduced Series I Savings Bonds (“I Bonds”) which are savings bonds for individual investors with interest rates linked to inflation. With inflation rates soaring, investors may be looking for options to help protect their portfolio against the ravages of inflation. Here is a quick primer on one compelling option in the fight against inflation: I Bonds.    How do I Bonds Work?  I Bonds are bonds issued by the U.S Treasury that earn interest based on a fixed rate and a variable rate that is adjusted twice a year based on changes in the Consumer Price Index for all Urban Consumers (or CPI-U).1  Current inflation is exceptionally high, so any I Bonds issued between now and October 2022 will earn interest at a 9.62% annual rate for six months.2 Interest is compounded semi-annually and added to the principal value of the bond. For example, if you bought $10,000 worth of I Bonds as of the date of this publication, you’d earn 4.81% (9.62% annual rate divided by 2) over the next six months and your I Bonds would then be worth $10,481 after six months.  The variable rate component of your I Bonds will then adjust to the new rate that will be announced in October. The variable rate on your I Bonds will also adjust every 6 months after that based on the inflation rate at the time.   The bonds will earn interest for the next 30 years or until you cash them out, whichever comes first.  You are not permitted to cash out your I Bonds within 1 year of purchasing them. Also, if you cash them out before holding them for 5 years, you will forfeit the last three months of interest.3    How do I Buy I Bonds?  I Bonds can only be purchased through the Treasury Direct website.  They may not be purchased in or moved to a brokerage account, a 401(k), an Individual Retirement Account (IRA), a Roth IRA, etc.   You can’t buy more than $10,000 worth of I Bonds electronically per person in a given calendar year.4   To purchase I Bonds electronically, you’ll need to set up an account on TreasuryDirect.gov and follow the instructions on the site to purchase your I Bonds.  [+] Read More

Year End Financial Review and Planning Checklist

December 9, 2021
Before the year ends, take some time to review your financial health. Here are 10 financial planning items to review before 2021 comes to a close.    1.  Take your Required Minimum Distribution   Required Minimum Distributions (RMDs) were temporarily suspended for 2020 due to COVID-19 relief legislation but RMDs are back for 2021 and beyond.  If your 70th birthday is on or after July 1, 2019, you will have to take an RMD from your retirement account prior to December 31st once you reach age 72 in most situations.1  Note that Roth IRAs do not have RMDs. Consult with your financial advisor to determine the exact amount of the RMD that you need to take before December 31st.  [+] Read More

Market Turbulence Amid Coronavirus Concerns

February 25, 2020
Global equity markets have experienced a pullback following heightened fears of the spread of coronavirus (COVID-19). This has left some investors wondering what actions they need to take (if any) with their portfolios. History has shown that equity markets typically rebound quickly in the event of a viral epidemic driven sell-off.  The pullbacks have historically been short-lived and have typically been followed by a continued upward trend. 1   [+] Read More

Yield Curve Inversion and Recession Threats

August 15, 2019
Concerns over an inverted yield curve combined with the threat of higher tariffs around the globe have created some equity market volatility over the past few weeks.  The ups and downs of equity market volatility can certainly be unnerving for investors, but volatility in and of itself is not necessarily a bad thing nor is it necessarily a signal of an upcoming recession. In fact, since 1980 the S&P 500 has suffered an average intra-year decline of 13.9% while the market has had positive returns in 29 of those 39 years.1   [+] Read More

End of Year Market Volatility

December 18, 2018
 The recent pullback in global stock markets has caused some concern that the bull market in equities is winding down. There is even some concern that this pullback is among the initial signs of an upcoming recession.  To gain some better historical perspective on the recent movement in the stock market, let’s take a look at historical intra-year market declines versus calendar year returns.1     [+] Read More

Mid-Term Election Year Volatility

October 26, 2018
Historically, equity markets have been very volatile in mid-term election years. Since 1962, the S&P 500 has had an average intra-year pullback of 19% in mid-term election years.1  In fact, equity market returns have historically been very tepid before Election Day in early November.  In mid-term election years since 1950, the market has returned an average of just 0.96% in the first 10 months of the year, but markets have typically rebounded in the final 2 months of the year, returning an average of 4.24% across November and December. 2 The recent market pullback has wiped out 2018 gains and the S&P 500 is now roughly flat for the year. Again, historically the first 10 months of a mid-term election year are typically flat only to see a relief rally in the final 2 months of the year once the results of the election are known with certainty. Will history repeat itself in 2018? While it is nearly impossible to forecast stock market returns over a specific time frame (particularly for a brief 2-month window), there are reasons to be optimistic going forward: Corporate earnings remain strong3: 81% of the 140 companies in the S&P 500 that have reported third quarter earnings (as of October 23, 2018) posted earnings per share that beat Wall Street expectations, with only 10.7% of companies reporting earnings below expectations.  Over the last 25 years, an average of 64% of companies reported earnings that beat Wall Street estimates with 21% of companies missing expectations.4 [+] Read More

BlackRock Checks-In on European Risk & The Week in Review

September 27, 2018
A Check-in on European Risk Fears of a fiscal showdown between Italy’s new government and the European Union (EU) have roiled Italian assets this year – and renewed concerns about EU cohesion. How worried are we? We see a limited risk of near-term flare-ups but are skeptical about the Italian government’s commitment to fiscal discipline and Europe’s ability to cope with the next downturn. We see better risk-return tradeoffs in non-EU assets. Italian assets have taken a hit this year. The selloff was sparked by fears that Italy’s populist government would breach the EU’s key budget deficit limit of 3% of gross domestic product (GDP), as the two major parties in the new governing coalition had vowed to cut taxes and boost welfare spending in their campaign. Italian 10-year government bond yields spiked after the March election, while local stocks fell. See the chart above. Italian assets have recouped some losses recently, only after Rome repeatedly assured it would respect EU rules in its soon-to-be released budget. We see scope for a further recovery in Italian asset prices, but do not see them returning to pre-election levels anytime soon. Why? A number of structural factors are weighing down both Italian and European assets. This helps explain why European stocks have underperformed other global developed markets in 2018. BlackRock's Budget Base Case [+] Read More

Lord Abbett Shares Reminders on October Deadlines for Retirement Planning

September 20, 2018
If you miss or ignore any of these important, applicable dates, you could hurt your retirement finances. As summer comes to an end, don’t forget that October ushers in some critical deadlines—some of which carry penalties. To learn more about these deadlines and the dates to put on your calendar, read on. Also note that while this is not IRA-specific, October 15 is generally the last day to file an individual income tax return that’s on extension. October 1—Simple IRA Establishment This is the last date in which an employer can establish a SIMPLE IRA plan, effective for 2018. Those plans established after October 1 would not be effective until January 1, 2019, at the earliest. Notably, an exception applies for a newly established business. If you’re a new employer that started your business after October 1, you can establish a SIMPLE IRA plan for the plan year by the end of the same calendar year as soon as administratively feasible after your business came into existence. [+] Read More

4 Ways the New Tax Law Can Reduce Your 2018 Taxable Income

September 19, 2018
A recent survey from the American Institute of CPAs found that 63% of individuals who either have $250,000 in investable assets and/or $200,000 in household income were likely to tweak 2018 financial planning strategies as a result of the new tax law. Most of the respondents indicated that ‘tweaking’ their financial plans would be in an effort to reduce taxable income, and the 2018 Tax Cut and Jobs Act offers a few new methods to do just that.¹ Here are four: Lump Your Charitable Contributions Together – in the new tax law, the charitable giving deduction has remained in place for taxpayers who itemize. The thing is, however, that many taxpayers are expected to take the standard deduction in 2018 instead of itemizing, since it has jumped to $12,000 for individuals and $24,000 for married couples. One method to get over the standard deduction, however, would be what many CPAs call “bunching,” or making a few years’ worth of charitable donations in a single year. That way, you could itemize your deductions in one year, and perhaps take the standard deduction the next. [+] Read More