March Market Insight

March 3rd, 2018 by Anchor Bay Capital's Investment Team

February left on a negative note this week in the stock market. For the month the S&P 500 finished down 3.9%, while The Dow was down 4.3%.  This negative month broke a 15 month trend in stocks.  The change in momentum has definitely raised questions of what is going to happen next.  While none of us can predict the future, here are 2 graphs from JP Morgan’s Guide to the Markets that are important to remember when investing in these market conditions:

This slide shows the biggest declines in the S&P 500 each year going back to 1980.  As you can see, the average intra-year drop is 13.8%.  Despite this, markets have finished up in 29 of the 38 years.  If you look at the last 3 years it tells a strong story.  In 2015, the market was down 12% and ended up finishing the year flat.  2016 experienced a large drop at the first of the year and was down 11% but ended up finishing with a 10% gain.  Last year is very unique.  The largest decline in 2017 was only 3%.  As investors we need to remember that volatility is normal and not let the success of 2017 change our behavior.

I think this slide is important because it shows how our emotions can hurt us if we let them take over.  The bottom chart shows the average annual return over a 20 year period ending in 2016.  The S&P performance averaged 7.7%.  During the same time, the average investor’s performance was 2.3%.  This shows how those intra-year fluctuations that we discussed on the previous graph can spook investors into making bad decisions.  It is important to put together an investment plan that defines what you are trying to accomplish and how you will adjust during periods of volatility then stick with it through the changing market conditions.