Welcome Back Volatility

Today, the Dow Jones Industrial Average fell nearly 1,600 points marking the biggest one-day point drop ever (though the 4.6% decline is nowhere near the worst on record). Since closing at an all-time high less than two weeks ago on January 26th, the S&P 500 has now fallen 7.8%. We’d like to put the recent market decline in perspective as we help digest this sudden change in direction after an extended period of a rising market with little to no volatility.

A Remarkable Run

With last Friday’s market decline, the longest streak in the history of the S&P 500 without a 3% pullback came to a close. As the chart below shows, we have now experienced (past tense) the end of the calmest period for the stock market EVER, and what a strong period it has been.

Today’s market move brought an end to the S&P 500’s 578 calendar day streak without a 5% decline from a closing high. The run of over a year and a half ended today will go down as the S&P 500’s second longest streak without a 5% decline on record. The only streak that was longer was the 593 day streak stretching from late 1957 through the summer of 1959.

We’ve still yet to experience a 10% pullback in the S&P 500 since the beginning of 2016, now sitting at 725 days, the 9th longest such period in S&P 500 history.

Historical Perspective

With the recent return of volatility, it is important to revisit historical intra-year volatility as a reminder of the risk involved with investing in the stock market. While the recent lull in volatility may have created what feels like a “new normal”, the last few days have served to remind us that investing in stocks does involve risk and the ups and downs are actually normal – not a market that rises on what seems like a consistent daily basis.

The following chart reflects the calendar year returns for the S&P 500 since 1980. Over this period, the average decline per year has been 13.8%. That’s right, from the high point to the low point in each and every year on average, the market drops nearly 14%. Has this historically spelled doom? Hardly. Instead, of these 38 years, the market has finished positive 29 years or more than three quarters of the time.

What now?

With the recent return in NORMAL volatility, what, if anything should you do?

For most people, the answer is actually nothing. However, if you are concerned that the stock allocation of your portfolio may have declined quite a bit over the last few trading days, now may be an ideal time to consider your asset allocation and in particular how much stock you own.

While it is human nature to want to participate in the market upside, it is of utmost importance to remember that this is not a one sided affair. The market is still up strongly over the last one, three, and five years, and we believe will likely recover from this downturn sooner as opposed to later.

So, instead of thinking of the recent downturn as a major cause for concern, instead take a deep breath. Consider how far the market has come, what is normal, and what risk is appropriate for your individual situation.

At Republic, we will be monitoring the market as well as our strategy allocations and will not hesitate to take action to protect portfolios should market conditions dictate.

As always, the Republic team remains available to discuss your individual situation and evaluate whether any changes may be appropriate.


IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.