We believe it is not only prudent, but our duty to address the recent market volatility we have seen in the investment markets in the past few days. In a world where news and articles are written for “clicks” instead of clarity, we wanted to provide our viewpoint – which is anchored by our evidence-based, data-driven investment approach. In uncertain times, we lean on historic market behavior to guide us. Please see below for a few eye-opening visuals that help frame the market environment we find ourselves in today.
Exhibit 1: There’s Always A Reason To Sell
Bottom Line: Over nearly the last 100 years, there have been plenty of reasons to sell stocks and never return. However, each war, crisis, and downturn has been met with new stock market highs eventually.
Exhibit 2: Reversals Have Happened Before
Bottom Line: Five years ago, we saw the stock market drop over 30% in an extremely short period of time – only to recover and finish the year up over 18%. At the lows of 2020, almost nobody was predicting a positive year. The investment markets are dynamic and can reflect several different paths forward, with some of those positive.
Exhibit 3: Timing the Market is Hard & Bad Market Timing is Devastating
Bottom Line: Since 1950, missing just a few of the best market days of the year can quickly turn calendar year profits into losses.
Exhibit 4: The Best Days Cluster Around The Worst Days
Bottom Line: Adding to the difficulty of market timing, the best days are often within days, if not weeks of the worst days. Those investors who bail out of the market can often miss the eventual rally. In today’s environment, a single tweet could bring stocks well higher.
Exhibit 5: Could Extreme Volatility Forecast Positive Forward Returns?
Bottom Line: Elevated fear levels (measured by the VIX index) have historically been a contrarian indicator – meaning the heightened fear has actually led to above average, positive returns looking six months forward. Given that the current VIX is above 40, today’s levels could end up marking an attractive entry point for long-term equity investors.
In summary, while the reason for this most recent pullback is new, market volatility is nothing our team hasn’t seen many times before. These uncertain times can evoke the worsts of human emotions – we encourage you to take care of your mental and physical health. Your team at Stonebrook Private is diligently monitoring the evolving market dynamics and are ready to usher you through what the investment markets may bring.
Disclosures:
Stonebrook Private LLC (“Stonebrook”) is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not constitute an endorsement of Stonebrook by the SEC nor does it indicate that Stonebrook has attained a particular level of skill or ability.
The information herein was obtained from various sources. The information provided is believed to be from reliable sources but no liability is accepted for any inaccuracies or completeness of information provided by third parties. The information in this communication is given as of the date indicated and believed to be reliable. Stonebrook assumes no obligation to update this information, or to advise on further developments relating to it. This is for information purposes and should not be construed as an investment recommendation. Past performance is no guarantee of future performance.
