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With less than one month left to go in 2017, the S&P 500 is on track to experience one of the least volatile years in its history. The continued bull market that began after Election Day in 2016 is not only impressive for its gain (approximately 25%), but also for its lack of any significant correction. This streak has ultimately become the longest standing “buy the dip” run in history. In fact, as of December 1, 2017, the S&P 500 has notched over 270 trading days without a 3% correction—a record in US stock market history. The previous record was set in December of 1995 when the S&P 500 traded 256 days without a 3% or greater correction (see chart below).
To help put this current S&P 500 move in perspective, we reviewed historical data back to the 1920s. Since the 1950s, on average, the S&P 500 has experienced a 3% or greater decline every 22 days. That’s approximately one such dip per month, yet we haven’t had a single dip in 13 months!
With the understanding that U.S equity markets are overdue for at least a modest correction, many clients are asking, “Now what?” Our advice? Keep some perspective.
Historically, shallow market corrections are difficult to predict, and have little impact on longer-term performance. Of course, past performance is no guarantee of future results and it’s important to understand consider your personal objectives, time horizon, among other key factors, prior to investing. With markets at all-time highs, we believe that it’s much more important for investors to:
- Consider utilizing a target asset allocation strategy which seeks to align with their financial plan and risk tolerance. Our Hidden Levers risk profile and stress testing software allow us to check clients’ portfolios to assess how closely their strategy aligns with objectives.
- Review concentrated stock investments. Any single holding, which exceeds 10% of a portfolio, should be carefully reviewed. A strategy should be in place to monitor the size of this holding and the potential to diversify accordingly.
- Manage expectations. After two exceptional years, we expect 2018 to bring more volatility and, likely, lower returns—and, for many investors, that’s OK. Remember that modest pullbacks are normal and part of the game for equity investors. If items 1 and 2 above are in check, don’t overreact to the inevitable correction. Professional portfolio oversight may help identify meaningful market corrections when investment changes are warranted.
Extended bull markets, coupled with low volatility, can lead to unique behavioral risks for investors. Fear, complacency, and greed can derail even the sharpest of clients. Proper perspective and appropriate risk management are keys to successful investing. Today that’s true more than ever before.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
