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Market update

Message from Jeff Singer, Executive Vice-President and Chief Investment Officer

Increasing global stock market volatility continues to make headlines. Today’s market action is no exception, and is the result of a collection of events: increased worries about slowing growth in China, a change in government in Greece, currency devaluations, a sharp drop in oil prices, and concerns over economic activity. 

These concerns were magnified today by aggressive trading and increased volumes which resulted in significant downward price swings across global benchmarks.

At times like this, it’s important to remember that it is inherent to the very nature of the stock markets to be volatile. In fact, the stock markets have shown tremendous resilience in the face of increasing pressures from global concerns like China, Europe, and a drop in the price of oil.   

Further, our own research shows that in the current market cycle, the S&P 500 is actually up more than 190% since bottoming on March 9, 2009 (price returns, local currency) and is only off by 7% for the one-month period.

For other examples of corrections during periods of expansion, see the chart below. Highlights show recent volatility is in keeping with previous corrections during larger periods of expansion: 

  • 1980 cycle:  averaged 2 corrections/year (15 total)
  • 1990 cycle:  averaged 1 correction/year (9 total)
  •  2000 cycle:  averaged slightly less than 1 correction/ year (5 total)
  • Current cycle:  averaging slightly less than 2 corrections/year (10 total)
Expansion S&P 500 increase % expansion # of 15% corrections during expansion # of 8% corrections during expansion

2009+

+ 190%

2

10

2001-2007

+105%

1

5

1990 – 2000

+415%

1

9

1983-1990

+247%

1

15

1975 – 1981

+126%

-

7

1970-1973

+73%

-

2

1960-1970

+107%

2

6

1957-1960

+56%

-

-

1953-1957

+117%

-

2

1948-1953

+93%

3

5

Average cycle

+149%

1

6

Source: IGIM, NBER, Bloomberg

History has shown that corrections are very healthy and very normal. For example, using data of  the S&P 500 since 1957,  research by Joshua Brown (The Reformed Broker) observed the following:  

  • There have been 48 instances in which the S&P 500 was in a drawdown of 5% from all-time highs.
  • In only 17 of those 48 instances did the drawdown extend to 10%.
  • In only 9 of those 48 instances did the drawdown extend to 20% or worse – in other words, the nine actual bear markets of the last six decades.
  • The bottom line is that 5% dips from all-time highs in the S&P 500 become bear markets less than 20% of the time. 
  • Said another way, it’s a false alarm more than 80% of the time.

Source: –Joshua Brown

Both history and the long view are on your side, and you can maintain peace of mind knowing your comprehensive, actively managed portfolio is benefitting from the cushioning effects of diversification. Holding fast to a long-term perspective despite short-term adversity remains key to successfully achieving your financial goals.

We will continue to monitor market events as they unfold. Further analysis will be available in other updates as required.

This Market update is published by Investors Group. It represents the views of Investors Group, and is provided as a general source of information. It is not intended to provide investment advice or as an endorsement of any investment. Some of the securities mentioned may be owned by Investors Group or its mutual funds, or by portfolios managed by our external advisors. Every effort has been made to ensure that the material contained in the commentary is accurate at the time of publication, however, Investors Group, cannot guarantee the accuracy or the completeness of such material and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein.

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