Market Perspective - October 2018

1. Market Perspective – October 2018
Experience Insight Impact
Overview: As is normally the case with markets, volatility has once again picked up after a lengthy
period of investor complacency. During these times, we seek to reframe the dialogue with clients,
reinforcing a long-term perspective. Timing markets has proven unsuccessful and most market
pundits advise against such efforts. While we touch on potential reasons for the increase in
volatility, this month we focus more on reminding ourselves and our clients about historical market
downturns and just how naturally occurring these events are.
1

2. Current Environment
Experience Insight Impact 2
Some of the reasons for the current increase in volatility include:
• Interest rates have increased rapidly as the Federal Reserve continues to raise
rates, with fears of the economy overheating at top of mind.
• Global tensions regarding trade have increased, with currencies around the
world impacted by the ongoing rhetoric.
• Concerns over corporate earnings are beginning to develop after some of the
strongest growth we have seen in years. Market participants have started to
question how long this will last.
• Some weakness has begun to develop in a few segments of the economic data,
such as housing (likely due to interest rates).

3. Where Are We Now?
Experience Insight Impact 3
As of 10/18, the S&P 500 (above, in white) is down 5.37% from its all-time high. Global markets have performed far
worse. More interestingly, the bond market (above, in yellow) remains firmly in negative territory, with the Barclays
Aggregate Total Return down 2.85% from its highs and down 2.3% YTD.
Source: Bloomberg

4. Equity Drawdowns Are Normal
Experience Insight Impact 4
This table shows that on average, the S&P 500 has experienced a 5% drawdown about every 71 days
since 1929. The recent market activity is a normal part of investing.

5. Thinking Long-Term
Experience Insight Impact 5
The red dots above indicate the intra-year declines, while the gray bars show year-end performance.
As shown, selling stocks during down periods tends to be the wrong move.

6. Never Panic
Experience Insight Impact 6
During the 11 bear
markets experienced
since 1945, investors
who endured peak to
trough bear markets
still ended up close to
flat within 2 years after
the peak (on average).
A bear market is
typically defined as a
20% decline in the
benchmark.

7. Market Perspective – October 2018
Experience Insight Impact
Conclusion: Over time, the fundamental reasons to own stocks and other asset classes will change.
While it makes sense to continually revisit allocation decisions based on fundamentals, as well as for
changing life circumstances and/or client cash flow needs, market movements unto themselves are
typically not reasons to panic in to or out of a particular asset classes. History has proven time and
time again that patience and logic create a more positive risk/reward path for long-term investors.
7

8. Disclaimer
Experience Insight Impact
Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for
any specific person for any particular purpose. We utilize information sources that we believe to
be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee
of future performance; investing involves risk and may result in loss of capital. Consider seeking
advice from a professional before implementing any investing strategy.
8