From time to time, the Financial Advisors at Sound Financial Strategies Group like to take you a little deeper, a peek behind the curtain if you will, and share some of the information and trends we see in the market. One term you may be hearing quite a bit right now is “volatility” in the market and how that impacts the measure of risk aversion. Let’s take a look at the volatility in the market today and see what we can glean from that information.
The headlines have not been kind to investors in recent days. The market had one of the worst 3-day runs since 2011 and the S&P 500 fell below its 200-day moving average for the first time in nearly 2 years. Large-company stocks and small-cap stocks are having some of their worst calendar years since 1998. Factor in very real concerns of growth in China and Europe, and the troubling headlines of terrorism, infectious diseases, and escalating conflict all over the world and you have a recipe for panic. We believe that in periods of market and news-cycle turmoil, the best thing investors can do is take a moment to step back, take a breath, and assess the situation in historical terms. See the big picture, and how our current predicament fits in the grand scheme of it all.
Based on where we are now, what do we know? First, the rise in volatility did not come as a shock. During the summer, we saw indications from VIX futures that there was strong possibility of a rise in equity volatility in the coming months. (VIX is a measure of implied volatility of S&P 500 index options.) Next, when we look at a longer term behavior pattern of the VIX, we see it is significantly below 2008 levels, and even still lower than levels in 2010 and 2012. That is not to say there shouldn’t be concern, but while US Equity market drawdowns are lower than they were in 2013, they are still well short of the corrections seen in 2010 and 2011.
So where does that leave us? The higher volatility should be somewhat expected, especially considering the uncertainties facing the global economy. While we may see the current market corrections continue, history has shown us those periods of correction since 2008 have the potential to be good buying opportunities. We understand that volatility can bring uncertainty and apprehension to investors, which is why we would invite you to contact one of our Financial Advisors and let us work through it together. We look forward to speaking with you soon!
Equity Investments are inherently risky and fluctuate with changes in market conditions. Indices are unmanaged measures of market conditions and are not available for direct investment. Past performance is not a guarantee of future results. This material contains forward-looking statements including, but not limited to, predictions or indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC. SFSG and CAMAS are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by CAMAS.
Posted on Mon, November 3, 2014
by Sound Financial Strategies Group