1st Quarter Stock Market Recap

If you pay attention to any financial media you probably assumed 2016 has been a horrible year for stocks so far, but you would be wrong. Although it wasn’t a great quarter for stocks, The Free Market US Equity portfolio (Diversified US Mix) was in the positive by just over 1%. Bonds were slightly better as the Free Market Fixed Income portfolio returned almost 2%. 1

The following is an excerpt from Matson Money’s Quarterly Statement with analysis on the market.

“2016 started out with brand new fears of a bear market taking hold after a steep decline in the stock market occurred over the first few weeks of the new year. After only 5 trading days, the U.S. stocks were down almost 6%, and by early February they were down as much as 11%, as measured by the S&P 500 Index. While this may have seemed perilous at the time, those investors that did not act hastily and react to this short term downturn saw the remainder of the quarter recoup all of that lost return and then some; the S&P 500 ended up 1.35% for the quarter. The renaissance wasn’t limited to U.S. stocks, however. After lagging behind last year and getting off to a rocky start in 2016, emerging market stocks shot up late in the quarter, with the MSCI Emerging Markets Index finishing up 5.75% for the quarter.

There was a common perception among investors and those in the media that a precipitous drop like the one that occurred to start the year was a harbinger for the rest of the year or even multiple years to come. This discourse can lead investors to have fear and trepidation about how their investment portfolios might weather such a storm. If one is operating under these assumptions, it is only natural for their gut instinct to tell them to panic and make potentially harmful decisions regarding their portfolio.

While many believe during a decline that the market will be slow to recover, history tells quite a different story. According to an article by Paul Lim in the NY Times, for the 60+ year period from 1946-2007 the average recovery for a stock market decline between 10% – 20% was only 111 days, meaning the market had fully recouped the losses in just over 3 months. Even for bear markets where stocks sustained losses of more than 20%, the recovery time was still under 2 years.

For those preaching fear over a negative January being an omen for a bad remainder of the year, consider that the S&P has dropped by at least 2% in January 24 times since 1926, and of those years, the average return over the remaining 11 months was +7.6%. Unfortunately, it appears that many investors out there may not have had the benefit of an advisor coach to keep them disciplined. By in large, investors were fleeing out of the market, as evidenced by $41 Billion of outflows from mutual funds worldwide in January according to ICI data.

In the end, choosing a wise financial strategy -and sticking to it -can have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.” 1

By Jimmy Hancock

References

1. Matson Money. “Account Statement.” Letter to James Hancock. 17 Apr. 2016. MS. N.p.

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