Perhaps it would be better if the stock markets were less liquid. High-frequency traders appear at times to drive the markets in one direction in the morning and then violently reverse direction mid-day. No apparent logic in either move. Investors become discouraged and the volatility continues.
Investment professionals and private investors quickly become despondent by the ferocity of the selloff. You just never get used to how quickly equity markets fall, I know I don't. Unlike many endeavours, investing success is not guaranteed by experience and intelligence. The randomness of returns makes forecasting close to impossible. Actively attempting to forecast the next price move usually ends up in tears. The one saviour is that over longer periods of time the equity markets appreciate with rising corporate earnings.
I suspect that a number of factors including the immense financial damage to the crypto market have spilled over into equities. Certainly, inflation and a potentially slowing economy are of concern but if interest rates move closer to 4% should we be losing sleep?
One factor currently stands out when it comes to equities. These are volatile times. As of June 3, 2022, the S&P 500 has posted intraday swings of 1% or more in 31 straight sessions, the second-longest streak in a decade (source, Bloomberg). It is not just the intraday swings, it is the cumulative amount of the correction. One of my favourite analysts (James Paulson) calculated recently that the S&P 500 has suffered three corrections in excess of 19% in the past four years. Highly unusual when one examines data going back to the 1950s. Typically a correction of 19% would occur every five years, not every 16 months.
I continue to focus on asset allocation. Keeping my portfolio widely diversified and rebalancing back to core weightings, when opportunities dictate.
Thoughts, agreement/disagreement? email me at tim@mortonir.com
Tim Morton, CFA is a recently retired portfolio manager with 45 years of experience working with private clients and is the editor of mortonir.com
Comments