Stock Market Volatility

Over the past 3 weeks we have seen significant moves in the major stock market indexes. On the following dates, The Dow Jones Industrial Average (Dow) was at these levels

January 26, 2018:  26,616 (all-time high)

February 8, 2018:  23,446

February 13, 2018:  24,640

What in the world is going on? Actually, not much but the correction we have been speaking of for the last year. The Stock markets go up and down, that we know for certainty. We do not know when those movements are going to occur. Some try to predict the movement of the stock market and are called Market Timers. Occasionally a prediction is correct and people swarm to them as the next stock market guru. In our opinion those short-term predictions that come true are more luck than science. Longer term trends can certainly be monitored, which is what we do and place our market movement predictions more on a historic level than what piece of news has moved the Index on any particular day.

Therefore, from a historic perspective just how significant has this move been? One would think that a 3170 point drop in the Dow over a two-week period would rank up there with the biggest losses in history. Well not to throw cold water on those that believe the stock market is melting down but the drop from high to low was only 11.9%. Now that is a significant number but pales in comparison to the 508 point drop of October 19, 1987 when that represented a decline of 23% of the market value in one day. The drop that occurred this year was in a historically correction mode, meaning a stock market drop of between 10-20% in value. Since the low of February 8th, the Dow has rebounded 1194 points putting us off 7.4% from the all-time high, and out of correction territory. Could we retrace those steps and once again fall more than 10%? Certainly. However, in our opinion that will lead to another recovery and prices will bounce back. A good question would be on what do we base our opinion? We do on the following factors.

    • Unemployment remains at low levels.
    • Interest rates while higher are still lower than historic norms.
    • Reduction in US corporate tax rates.
    • Continued strong housing market, chiefly due to the low supply of homes due to the new housing drought of 2008-2012.
    • Rising global middle class, we call this Industrial Revolution 2.0. With the continued industrialization of China and India millions of people will have economic opportunities that were previously unavailable.
    • Technology, technology, technology.  We are still in the infancy of the technological revolution and the warp speed of change in our opinion will not slow down anytime soon. The run up of technology stocks in the late 1990’s was all about speculation. The current run up of these stocks is based on realization.

Bottom line: We will more than likely continue to see stock market volatility. That is the historic norm. Years like 2017 were abnormal as we saw little movement other than up. It is always nice to experience a year such as that but reality is that the stock market is made up of buyers/ sellers and rarely are they always on the same page.

Written and made available February 15, 2018. Past performance does not indicate future results. This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties.  Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Kestra Advisory Services, LLC. as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Dow Jones Industrial Average monitors the performance of 30 large companies located in the United States.