Market Volatility - Nothing New, Keep Things in Perspective


From all the negativity on the news, it may seem like the world economy is “going to hell in a hand basket,” as indicated by a Fox News poll earlier this week. Fears of the Ebola virus spreading along with Europe in a recession have resulted in a pullback in global equity markets and a decline in U.S. Treasury Bond yields.  

But as we must do during times like this, we have to keep things in perspective.  Below is a chart produced by J.P. Morgan.  It shows the S&P 500 performance over the past 34 years.  Notice the ups and downs (volatility).  And notice that there is a down period in every single year (shown as red dots) and the average down market over this period is 14.2%.  Even with those yearly market corrections, the market ended higher in 26 of the last 34 years (shown in grey bars).    We don’t know today what this year will eventually look like on this chart, but we do know that it will be like any other year as far as experiencing a market drop.  


It’s also noteworthy that we don’t see any data at this time indicating serious problems, such as an oncoming recession, runaway inflation, massive bank failures or falling corporate profits.  In fact, corporate earnings estimates for 2015 are higher today than six months ago, according to FactSet research.

The point is to realize that the market is volatile, and sometimes it reacts more to emotional concerns than factual data.