The Return of Market Volatility

On February 6, in response to the volatility that the markets were experiencing, we sent the following thoughts to our clients and other contacts for whom we had email addresses. (If you would like to be added to this list, contact info@bellinvest.com):

We understand that market dips can be unnerving, especially after a year without one. 2017 was an aberration in terms of the low volatility experienced and the lack of a meaningful market decline. This year started out much like the prior with strong gains and little in the way of volatility. Since last week through yesterday’s market close, however, volatility has picked up and we have seen a 6.8% decline in the U.S. stock market.

The legendary finance professor at Wharton, Jeremy Siegel, called this pullback a “shakeout,” which is good for the market as it reminds investors that stocks do not go up every day. On average, the market pulls back by 5% three times a year and pulls back by 10% once a year — neither of which happened last year.

Over the last few trading sessions, investors have been concerned that the FED will move faster and more aggressively than anticipated given we have 2.9% growth in average wages from a year ago and an historically low unemployment rate — which in turn is driving fears of inflation. The 10-year treasury yield hit 2.85% before coming back down to the 2.79% yesterday.

In brief, we are finally returning to normal market volatility, which is healthy. We do not believe that this activity should change the strategy of long-term investors.