Market volatility does exist! After a year of all-time low volatility and booming stock and bond markets, investors received a wake-up call in February when equity indexes around the globe sold off by as much as 10% in a matter of days. This short period of time captured the two largest one-day point drops the Dow Jones Industrial Average Index has ever recorded, as well as the biggest intraday point loss in history when the index plummeted nearly 1,600 points, or 6.2%, in one trading session on February 5.
Ultimately, a strong U.S. economy, global growth, and a continued Goldilocks scenario continue to persist and helped equity markets regain confidence and recover. However, the market turbulence in early February should serve as a strong warning signal for anyone with money invested, in particular for those in or close to retirement with limited time to recover from losses.
The current equity bull market is the longest in history. We saw extraordinarily low volatility in 2017 and multiple decades-long positive fixed income returns, all fueled by a giant punch bowl of stimulative monetary policy from the Federal Reserve and central banks around the globe for the past decade.
At some point the slopes of these curves will change, perhaps even at the same time, and drive losses in investors’ portfolios. Although the timing and depth of portfolio impacts are up for debate, the fact that it will happen quicker than most investors will be able to react isn’t. Markets move faster today than they have in the past – thus being adequately prepared well in advance is prudent for all investors.