What a week.

October 12, 2018

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What a week.

This past February, investors were amazed by the return of volatility to US stocks, as roughly one trillion dollars in market value had been wiped out in the span of just a few weeks. It took the entire year to recover through the end of September, as the major averages all made fresh highs.

And then we did it again.

There’s no reason for what just went on – a fast 6% sell-off for the S&P 500 – there are only fragments of reasons for us to fit together and hope we’ve got a handle on the why’s. As Barry explains, everyone is free to pick their pet cause: Tariff wars, interest rates, valuations, the Federal Reserve, elections, etc.

Here’s a really interesting take in the New York Times saying that corporations took a pre-earnings season break from doing stock buybacks and therefore the leading buyers of equities were on the sidelines. Their buying might have kept the drop from becoming a rout. Or merely forestalled the rout that so many have been saying we were overdue for.

Today we’re getting a snapback, but the technicians won’t like it. They see failed breakouts for all the indices and continued downtrends in international stocks confirming the weakness here. Fundamentals people will look to the coming earnings reports next week and the following week to make themselves feel better for hanging tight.

Either way, what’s absolutely true is that this year is very different from last year. Ben Carlson ran the numbers for me: Using rolling 30-day standard deviation, it turns out that the S&P 500 has double the volatility in 2018 vs 2017. Michael Batnick points out that last year we had only four days during which the S&P 500 dropped 1%. This year it’s already happened 18 times including yesterday. It’s reasonable to expect even more. If it’s messing with your head, your portfolio may be too heavily invested in equities or you merely need a reality check: Returns require risk, they’re earned not gifted to you.

Here’s some stuff you should be reading today…