14 Sep 2022
When I wake up in the morning with a text from my brother-in-law in North Dakota commenting on the market, that is a sign that the day left a mark.
Yesterday – September 13th – the market (as measured by the S&P 500® Index) was down -3.4%. That was the single largest daily drop since June 11, 2020 (Source: YCharts). What happened back in June 2020? I’m sure a deep Google search could answer, but I have no clue.
While yesterday was a tough day in the equity markets, it’s helpful to step back and take a longer look at equity returns beyond just September 13th.
For investors with exposure to U.S. stocks over the last 3+ years, the experience has been a completely different ride than the last day or several months with double digit (and positive) returns for 3, 5 and 10 years returns.
It goes without saying that investors are very unlikely to achieve those solid long-term returns without having the discipline to withstand inevitable pullbacks and market uncertainties.
Has the market been more volatile of late?
In speaking with investors (beyond my brother-in-law), their feeling is that the markets have been much more volatile recently. And they are correct.
In the exhibit above, we show the daily volatility (daily % change) for the S&P 500 going back to January 2020 and highlight each year separately. A few observations:
- Early 2020 was not for the faint of heart as we moved through the early days of COVID. The market was down -12% on March 16th – in a single day!
- Conversely, it was up +9.4% on March 24th. Why? No clue.
- 2021 was generally a lower year for daily volatility. While volatility was not gone, it was generally forgotten with the market, as represented by the S&P 500, up 28.7% for the calendar year.
- 2022 has seen an uptick in bigger moves (both up and down). 2022 has been noticeably more volatile than 2021.
- Note the additional line representing the level of the S&P 500. Over the period (1/1/2020 – 913/2022) shown, the S&P 500 is up 22% on a cumulative basis.
The S&P 500 is likely not your portfolio
For most diversified investors, their portfolio is likely not just exposed to the S&P 500. At Frontier Asset Management, our strategies will include a thoughtful allocation beyond this index to possibly include:
- Equities: Large cap, small cap, developed ex-U.S. and emerging market stocks.
- Fixed income Securities: Treasury bonds, corporate bonds, mortgage bonds, high-yield bonds, TIPS and more.
- Diversifying options: Multi-asset funds, real assets (REITs, Infrastructure, Commodities and Natural Resources), managed futures and more.
I for sure don’t want to sound pollyannish about the year-to-date market returns, but for those with exposure to U.S. stocks over the last 3+ years, the U.S stock market’s contributions have been additive, before advisory fees. No doubt the market is facing much uncertainty heading into the fourth quarter – high inflation, an aggressive Federal Reserve, continued war in Ukraine, etc. etc. But historically, the market has been able to look through similar headwinds and, at some point, move on. As they say, it’s not timing the market, but time in the market.
Look for our market update for additional context and insights into Frontier Asset Management strategies after the conclusion of this quarter.
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Exclusive reliance on the information herein is not advised. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an s investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees and expenses. Frontier may modify its process, opinions and assumptions at any time without notice as data is analyzed.It is generally not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index.
Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods.
The S&P 500 index consists of U.S. Large Cap Equities, which is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ.
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