In recent weeks volatility has found its way back into the markets, and headlines once again seem to ‘rule’ the day whether it is inverted yield curves (that have lead to recessions in the past), trade war/tariffs, or some opinion on the Federal Reserve doing too much or too little, and last but not least the $10+ Trillion in sovereign debt that currently has negative yields. In many client conversations as well as with colleagues of mine of late the topic of a market ‘crash’ has come up a lot in recent weeks, and rightfully so, as again some of the headlines out there are scary. During times like these, one thing that I like to do (since I am kinda a market nerd) is to look back at some of the other headlines from recent market declines to perhaps put things in perspective. In the first two months of 2016 the market (S&P 500) declined a little more than 10% - a quick search of “February 2016 market decline” shows some headlines that with hindsight seem like not that big of a deal now. The same can be said for ‘reasons’ for the November/December sell off at the end of last year (although a lot of those headlines could be recycled again today just 8 months later).
My overall point is market volatility is normal. Normal does not mean it is fun, and declines in account values lead to emotional questions about “how does this impact me/us and our future goals?” Questions and concerns about the next market crash coming are also normal as well; the fact is we have had economic expansion for 10 years straight only strengthen the argument of some that we are due for a recession/correction. Personally I prefer use the Yogi Berra quote anytime someone asks me about what the market is going to do “Predictions are hard, especially about the future”.
Markets have to go down in order to go up. We will likely (Australia has not had a recession since 1991 – interesting fun fact) have a recession again at some point, heck we may be in one now for all we know. If and when that time comes, hindsight headlines of the obvious signs will reign supreme. We have some very smart clients that we work with, and I like to believe I speak with a lot of smart advisors in our firm and outside. With all the concerns of what’s been happening of late, a quote that comes to mind is: “The stock market is never obvious. It is designed to fool most of the people most of the time”.
As always, if you have questions we are here to help! Enjoy the rest of your summer.