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

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

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

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

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

Through April of this year, this economic expansion is now 106 months old. If the US economy continues to grow through May – which seems all but assured – it would make this economic expansion the second longest in US history. Looking out even further, if the economy continues to grow through July 2019, it would become the longest period of growth in the history of the country. There’s a real chance it could happen – in a recent poll of global fund managers by Bank of America Merrill Lynch, only 13% of them thought a recession was likely in the near term. Using Corporate America (earnings) as in indicator, the numbers also support the case for more growth: in Q1 2018, the blended earnings growth rate for S&P 500 companies is 24.5% as of this writing, which would mark the highest earnings growth rate the economy has seen in nearly eight years. [+] Read More

Inflation worries caused by a single economic report have led to increasing concern that the economy may be overheated. A rapidly expanding economy could lead the Fed to increase interest rates at a faster than expected pace. The January Unemployment Report from the Bureau of Labor Statistics showed an increase in average hourly wages of 9 cents, pushing the annual increase to 2.9% from 2.6%. A couple points of caution on this report are needed. First, it is possible that some or even most of the wage increase is due to 18 states raising their minimum wage as of January 1st. If that is the case, this will likely be a one-time bump in average wages rather than a sustained trend higher. Second, there could be a temporary weather impact on this report (which won’t repeat once the weather gets warmer). Some workers were not able to work full-time because they couldn’t make it to work on certain bad weather days. If these workers were lower paid workers, that would push up the aggregate average hourly wage for January because the lower paid workers worked fewer hours. We’ll need to wait for the February, March, and April reports to see if the increase in average hourly wages is a trend or if the January report is just a blip on the radar. [+] Read More