Recent market volatility has grabbed headlines, and rightfully so. Since September the S&P 500 is down over 4%, the Russell 2000 representing small cap stocks is down over 10% since peaking in April 2014, and international stocks measured by the MSCI EAFA Index are down more than 11% over roughly the same time-frame. Volatility has returned to the markets with the Dow Jones Industrial Average posting triple digit moves in 3 straight sessions. As a result, many investors may be taking a closer look at their portfolios.
To put recent events in perspective, we took a look at research on market pullbacks and corrections over the long-run. According to Capital Research and Management Company, since 1900 a 5% correction in the Dow Jones Industrial Average has occurred on average 3 times a year and lasted on average 47 days in duration. Corrections of 10% or more have taken place on average once per year, lasting on average 115 days. Taking a step back and looking at the bigger picture, you can see that recent market declines are by historical norms, quite normal, and to be expected as the market inhales and exhales. In fact, you could argue the market is well outside the historical norm, not having experienced a decline of 10% or more since October of 2011. That’s among the longest periods without a 10% correction in market history, with the S&P up nearly 95% since that date.
With that perspective in mind, TradeKing Advisors’ managed portfolios are designed to participate in the long-term movements of markets. While we can’t forecast the exact magnitude or duration of the current market decline, we do believe investors with a long-term mindset can use the history of market setbacks and try to set expectations and prepare mentally for times of volatility. After all, we believe one of the keys to reaching one’s investment goals is to have a long-term plan, always remaining cognizant that one of the only constants in the financial markets is change.