Market Insights – “It’s A Long Season”

If you’re like us and follow the markets like your local sports team, cheering and booing along the way, you may have heard an uptick in boo birds lately. Our humorous (we hope!) sports fan analogy is certainly not meant to trivialize concerns you may have about the stock market’s direction in the first week of the new year, especially in light of last quarter’s market results. Continuing the sports analogy, as the cliché goes, “It’s a long season, not a sprint”. Remember too, that a diversified portfolio is never fully exposed to what happens in the stock markets. 

Here are a few thoughts to keep in mind. Since 1980 (through 2014) the average intra-year decline in the S&P 500 has been roughly 14% as we have noted in previous communications, so current market conditions are surprisingly normal. In 26 out those 34 years, despite the average intra-year drop, the market closed positive 76% of the time. That does not mean that the declines were not painful; it’s just a reminder that the market goes UP and DOWN, not up OR down. And, as draw-downs are unavoidable, and the timing of rebounds is unpredictable, there is no sensible option for the long term investor but to watch a ball game and forget watching the market.

For those of you who are in or nearing retirement, it’s easy to forget that you also have a “long view” given today’s extended life expectancies. If you are forced to withdraw from an employer’s retirement plan when markets are in decline, you can roll plan assets over (and defer taxes) into a broadly diversified IRA portfolio that could be positioned to capture a market rebound.



Additional observations to consider during this volatile market:

  • It’s never been wise to be a bear for too long. In the last 87 years, stocks closed down 20% or more six times (6.9%), but had returns of 20% or more in 31 (35.6%) of those years. See the graphic on the right for detail.
  • Corrections to the market are often followed by good investment opportunities, so live to fight another day and embrace corrections difficult though it may be.
  • Every sell-off, 1987, 1990, 1994, 2001, 2007, all felt like the end of the world. The media made it seem that way, today, as another writer said, “Twitter will make it feel like an apocalypse”.


To further illustrate our point, here are two telling graphs from JPMorgan Asset Management’s: Guide to the Markets 1Q 2016 that highlight significant market or external events and the market trends around them. The first of the following two graphs is especially significant. Note the macro environment conditions that attended the bear markets. None of those conditions are present today, with the possible exception of market valuations, which, while far from “extreme”, may be slightly high – at least before this downturn. Note too, the strength of the rebounds. Current market performance seems to us to be more of a “to be expected reversion to the mean” correction after a long running bull market, than the beginning of a bear market.

JPMorgan Slide 14 Bear Markets and Subsequent Bull Runs cut

JPMorgan Slide 15 Stock Market Since 1900 cut

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