Global stock markets are suffering their worst week thus far in 2015, as concerns about tepid growth have sparked a selloff and an eroding of confidence. The S&P 500 has gone negative year-to-date and is nearing “correction” territory, having closed yesterday at 2035.73. With the same media pundits who months ago heralded every new market high now calling for nothing short of economic Armageddon, some context and color on the market’s recent moves is instructive, insightful, and, hopefully, calming.
As I write this, US markets are certainly in a “dip” (defined as a decline of 5% to 10%), closing in on a correction (defined as a decline of greater than 10%), but still nowhere near a bear market (defined as a decline of greater than 20%). Dips, corrections, and even bears are normal and necessary as the market iterates itself toward robust pricing. Since the end of World War II (1945), there have been 27 corrections of 10% or more — which equates to one correction roughly every 20 months. Interestingly, however, as of the start of this week (August 18, 2015), the S&P 500 had gone 1,413 calendar days (i.e., from 10/03/11 through and including Sunday 8/16/15) without a 10% or greater drop in the index, the 3rd longest stretch without a double-digit pullback in the last 50 years. No trend goes on forever, so markets were likely overdue for a bout of volatility. The US market’s most recent correction took place in 2011, between the end of April into the end of September. The Dow Jones Industrial Average dropped roughly 16% and the S&P 500 actually dropped a hair over 20% before snapping back.
From BSW’s perspective, some comfort comes from knowing we re-balanced client portfolios starting on August 5, 2015, when the S&P 500 was 5% higher at 2100, taking profits on Growth Equities where possible and redeploying to other portfolio components. Rather than a “crystal ball,” our semi-annual re-balancing reflects the disciplined, proven, constant-gardener approach we advocate within portfolios. We take some comfort (again) from a historical perspective on corrections. Of the aforementioned 27 corrections, every single one of them turned out to have been great buying opportunities in the fullness of time.
As always, if you have any questions or would like to discuss you portfolio in greater detail please contact us, we are happy to help.
Thanks for reading,
David Wolf, Chief Investment Officer