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2018 Clear Harbor Flash

Thoughts on The Most Recent Bout of Market Volatility

October 29, 2018

What a difference a month makes.  The rosy outlook for corporate America did not fade this month.  However, the equity markets both home and abroad faltered over the last five weeks as uncertainty over the sustainability of earnings growth fueled speculation that the equity bull market in the US has run its course.  Continued dollar strength and geopolitical uncertainty has weighed on Emerging Markets, a trend that commenced in January of this year.  And geopolitical uncertainty from London to Berlin to Rome has weighed on consumer and business optimism in Europe, sending benchmarks markedly lower over the course of the month and year.

While we do not welcome a rise in market volatility, it is a normal component of a functioning equity market.  In fact, an asset class devoid of volatility over the long run should lack the potential to bear significant fruit to investors.  For example, a Treasury bill that matures in 3 months has extraordinarily low-price volatility while a growth stock represents many multiples of anticipated price movement.  It is for this reason that a growth stock’s anticipated long-term return profile and current price assumes a significantly higher total return than that of a Treasury Bill.  I use these two examples as proverbial “book ends” for illustration purposes.  


Tuning out the noise

May 1, 2018

For investors, it can be easy to feel overwhelmed by the relentless stream of news about markets.

Being bombarded with data and headlines presented as impactful to your financial well-being can evoke strong emotional responses from even the most experienced investors. Headlines from the ”lost decade”[1]can help illustrate several periods that may have led market participants to question their approach.

  • May 1999: Dow Jones Industrial Average Closes Above 11,000 for the First Time
  • March 2000: Nasdaq Stock Exchange Index Reaches an All-Time High of 5,048
  • April 2000: In Less Than a Month, Nearly a Trillion Dollars of Stock Value Evaporates
  • October 2002: Nasdaq Hits a Bear-Market Low of 1,114
  • September 2005: Home Prices Post Record Gains
  • September 2008: Lehman Files for Bankruptcy, Merrill Is Sold

While these events are now a decade or more behind us, they can still serve as an important reminder for investors today. For many, feelings of elation or despair can accompany headlines like these. We should remember that markets can be volatile and recognize that, in the moment, doing nothing may feel paralyzing. Throughout these ups and downs, however, if one had hypothetically invested $10,000 in US stocks in May 1999 and stayed invested, that investment would be worth approximately $28,000 today.


Recent Market Volatility

February 7, 2018

After a period of relative calm in the markets, in recent days the increase in volatility in the stock market has resulted in renewed anxiety for many investors.

From February 1–5, the US market (as measured by the Russell 3000 Index) fell almost 6%, resulting in many investors wondering what the future holds and if they should make changes to their portfolios.[1] While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.


As Goes January, So Goes the Year?

January 3, 2018

As investors ring in the new year, some may see the occasional headline about the “January Indicator” or “January Barometer.”

This theory suggests that the price movement of the S&P 500 during the month of January may signal whether that index will rise or fall during the remainder of the year. In other words, if the return of the S&P 500 in January is negative, this would supposedly foreshadow a fall for the stock market for the remainder of the year, and vice versa if returns in January are positive.