Equity markets have displayed extreme volatility in recent months, but we believe the worst is over. On Monday, December 24th the S&P 500 index experienced Capitulation. Capitulation is reached when a large number of investors “throw in the towel,” so to speak, based on a complicated mathematical calculation of market momentum. &nb
After more than 18 months of rising markets, we’ve started to see a decline, with large sell-offs and heightened volatility in recent days. Although this might feel unsettling, I want to encourage you that market pullbacks like this are a normal part of investing and a healthy market cycle. We cannot have times of growth without corresponding declines.
Volatility in the equity markets continues as we near the midterm elections. We believe the volatility is largely a result of uncertainty regarding the election outcomes. The US economy remains strong and there does not appear to be a recession looming in the near future. Once the elections are over we expect equity markets to trade based more on earnings and less on ancillary
The recent declines in equity markets have been attributed to rising interest rates by many pundits and our media in general. We believe, however, that there may a different culprit: uncertainty. The midterm elections coming in early November have cast a lot of uncertainty regarding hundreds of seats in Congress.
It’s hard to believe that Fall is just around the corner but here it is. The U.S. economy is rocketing forward with over 4% GDP growth two quarters in a row, with the stock market leading the way after an 11% correction in February. Now with the S&P500 at all-time highs, domestic equity markets continue to rise in anticipation of continued earnings growth.
Welcome back to volatility. The reason we say “welcome back” is because we haven’t seen much in recent years and appear to be returning to normalcy. The S&P500 hit an all-time high in late January only to see a pullback of just over ten percent.
The markets have lifted out of correction territory and seem to be back on the rise. We won’t be out of the woods until we break above the all-time highs of January. A bear market is always a possibility but it seems unlikely with year-over-year earnings up 26% on the S&P500*. Thus, there is still no recession in sight, largely because of the new tax law.
Dave Ramsey’s Seven Baby Steps
Step #1 Emergency Fund
In volatile times, human nature can wreak havoc on the returns of investors. When investments under-perform for a short period, people tend to feel discouraged and uncertain, often deciding to take their losses or shift to a style that seems to be working better. When investments enjoy a period of good short-term results, people feel renewed confidence and optimism and money pours i