Recent Market Volatility in Perspective
Contributors
f you’re following the news, you know that financial markets across the globe have experienced increased volatility in recent weeks from trade concerns, protests in Hong Kong, and political uncertainty. The volatility was exacerbated this week largely due to the inverted yield curve – which is when certain intermediate and long-term Treasuries yield less than shorter-term Treasuries. In this case, the concern was raised due to the yield on two-year Treasury notes being slightly higher than that of the 10-year Treasury note. Many market prognosticators tie this to an immediate sign of recession, but the data below deserves consideration. Here’s what the yield curve currently looks like:
While no one is able to predict the future, it’s interesting to note that on average, the S&P 500 has returned 2.5% after a yield-curve inversion in the three months after the episode, while it has gained 4.87% in the following six months, 13.48% a year after, 14.73% in the following two years, and 16.41% three years out, according to Dow Jones Market Data. On top of all that, a yield-curve inversion doesn’t usually result in an economic recession instantly. From 1956, past recessions have started on average around 15 months after an inversion of the 2-year/10-year spread occurred, according to Bank of America Merrill Lynch.
As financial advisor, we appreciate how unnerving it can be to watch this type of volatility, especially for retired clients. Then top it off with 24-hour media coverage (made for traders and not investors) and it can seem like the markets have been tumbling for months, when in fact the S&P 500 is still having a strong year and currently sits just 6% lower than its record high.
So, although we know this is uncomfortable, the best way to manage market declines is to maintain your long-term outlook, with a diversified portfolio across multiple asset classes. History shows us that the market generally does recover from these dips. As always, we are closely monitoring market conditions, and are here to help with perspective or reassurance if you want to discuss your portfolio or any other concerns.
Vahanian & Associates (“Vahanian”) created this presentation for its website. Any other distribution of this presentation is strictly prohibited. While the content presented is believed to be factual and up to date, it is based on information obtained from a variety of sources. Vahanian believes this information is reliable, however, it has not necessarily been independently verified. Vahanian does not guarantee the complete accuracy of all data in this blog post, and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of Vahanian as of the date of publication and are subject to change. This blog post does not constitute personalized advice from Vahanian or its affiliated investment professionals, or a solicitation to execute specific securities transactions. Vahanian is not a law firm and does not intend for any content to be construed as legal advice. Readers should not use any of this content as the sole basis for any investment, financial planning, tax, legal or other decisions. Rather, Vahanian recommends that readers consult Vahanian and their other professional advisers (including their lawyers and accountants) and consider independent due diligence before implementing any of the options directly or indirectly referenced in this blog post.
Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by Vahanian, will be profitable or equal any historical performance level. Any index performance data directly or indirectly referenced in this blog post is based on data from the respective copyright holders, trademark holders, or publication/distribution right owners of each index. The indexes do not reflect the deduction of transaction fees, custodial charges, or management fees, which would decrease historical performance results. Indexes are unmanaged, and investors cannot invest directly in an index.