All over the news is commentary about the 1000+ point decline experienced by the Dow Jones Industrial Average today. Frankly, we are relieved to see some normalcy come back to the investment markets. Our role in this environment is to provide perspective and objectivity to what we see occurring.
Here are a few of the unusual and potentially concerning facts about 2017:
- S&P 500 generated its ninth consecutive year of positive returns tying the historic bull market of the 1990s.
- 2017 is the first year ever that the S&P 500 delivered a positive return in each and every month.
- S&P 500 had gone 400 trading days without a 3% decline, the longest on record.
- S&P 500 had the fewest number of 1% and 2% daily price moves in 40 years.
- S&P 500 has not seen a 5% correction since June 2016, the longest period of time in 20 years.
- The Federal Reserve continues to raise interest rates. At some point higher rates will be a headwind to the equity markets and economic growth.
- Foreign equities appear to be in the early stages on relative outperformance to US equities.
There are two potential responses to these types of facts. We can either assume a “new normal” entered the investment markets in 2017 where risk(volatility) was no longer present OR we should be concerned about the lack of volatility(risk) in 2017. We believe healthy investment markets require the presence of risk(volatility). We are relieved to see some normalcy appear.
All of us are familiar with the famous geyser called Old Faithful at Yellowstone National Park. Regularly Old Faithful will let off some steam every 35 to 120 minutes. It’s Old Faithful’s way of handling “pressure”. The steam is a sign Old Faithful is functioning normally. We would naturally and correctly become concerned if steam stopped exiting Old Faithful on a regular basis……
The challenge we face as your fiduciary is assessing whether the markets are producing sufficient “steam”. Over the last few days, we are seeing signs of risk(volatility) returning to the markets. Are the last few days the beginning of something more severe OR should we be relieved risk(volatility) has returned to the investment markets? It has been so long since investors have even seen a 2-3% correction, a correction of 5%, or more, feels much worse than it actually is, and can lead to emotionally driven mistakes. Do you “buy the dip” or “run for the hills?” We feel you do neither one, yet. At the moment, this is the expected correction we have been discussing over the last several weeks in our reviews with you.
At GFP we structure your investments to weather these types of events while supporting your lifestyle and retirement. We are confident our approach of blending stock index funds, tactical mutual funds, multi-alternative mutual funds, and bond mutual funds is a sound approach.
We are extremely grateful for the trust you have placed in our team. Nothing like a little “steam” to remind us of the importance of sound risk management, and having a team like GFP looking out for your best interests.
