By historical standards, the stock market volatility of the past three weeks has been unprecedented. Not only in its pace but also its daily magnitude. We experienced the second largest daily decline in the indexes since 1987… twice. And we saw the largest single day increase since 2008.
We at Argent Bridge view this as a mis-pricing of the capital markets, following the longest bull market ever(!) and accelerated by the reaction to a fast-moving humanitarian issue. Volatility of this severity happens in pockets, and to expect it to continue considerably longer we do not think is warranted.
We fully expect the dust to settle on this manic market and economic factors to eventually drive performance forward. A recession is a re-setting mechanism for valuations and for business profitability and those have to come down before they can rise again. It appears that we are in the midst of that process and there may be more to come, likely at a more measured pace.
The current economy is on a much better foundation than the recession of 2008. Corporate profits are good, but not excessive; US economic output has been slow and steady rather than being red-hot; and the capital reserves, not only in the financial system, but also of municipalities all over the country, are much more prepared, having learned from the credit crisis 12 years ago.
The economy is the driver of corporate profits and thereby the stock market. Receding from a manageable level, rather than crashing down from lofty heights could suggest the economy is situated to recovery more quickly. And since the stock market is a leading indicator of the economy, staying invested as the economy works through and out of recession is key.
As always, we stand ready to address your questions, concerns and input.
Joe Gallemore, CIMA®
Partner, Investment Management & Research
Charles Schwab and Asset Protection
In this time of general uncertainty and some level of unease, we thought that highlighting this brochure on: how client assets are protected at Schwab would be reassuring. The link provides an overview of Schwab’s asset safety and insurance policies.
Charles Schwab and Triad Advisors are not affiliated.