Volatility Returns. A Welcome Relief.
Volatility returned to the markets this month. As we closed out January and entered the first few days of February, the S&P 500 lost 5.0% while Canada’s S&P/TSX lost 5.1%* – unnerving some investors. Markets in Asia also suffered losses over the period. We’ve been in the midst of one of the longest, strongest bull runs since the 1990s and have been due for a correction for a while now. In fact, we’ve gone 16 months since the last 5% drop. Historically, markets see a 5% drop at least three times a year and a 10% correction at least once a year.
- Triggers: Strong U.S. employment and wage growth led to inflation concerns and fears of further interest rate increases. The market’s continuous uptrend has stretched equity valuations, which means stock prices were expensive and a pull-back was in the cards.
- Keep in mind: The current volatility is normal and a welcome relief. We haven’t seen this type of downward movement since October 2016, and have forgotten what it’s like to experience normal market behaviour.
- Good news: Global economies are growing, led by the U.S. and developing markets. Corporate fundamentals are strong and on pace for the best earnings season since the financial crisis. When markets retract, stock valuations retreat to more reasonable levels, offering opportunities to add to your portfolio at cheaper levels
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