2016 has been a year of volatility, but as we have seen since the end of February, not all volatility is negative. The recent market activity has come as a relief to many bulls and a surprise to many bears. At Rocco & Associates Wealth Management, we still believe the market is going to be up and down over the next several months, and there will still be volatility to the downside before the year is through. However, the important lesson from this movement is timing. When it comes to investing, we firmly believe that it is time in the market, not timing the market that makes a successful long term investor. There is no doubt that many investors sold their holdings when the Dow was below 16,000 and missed out on the most recent rally. Selling during market drops and missing out on the bounce back is a common occurrence. In fact, over the past 20 years if you missed the 10 best performing days in the market each year, your returns would be almost 4% lower every year over that time period!1 No one knows when those days are coming, so it is important to stay focused on your long term goals. The only exception to this rule would be a new investor: if you are just getting into the market, we believe that a systematic approach is best. If you are looking to get started with investing, don’t hesitate to reach out and work with us to create a system that seeks to meet your unique goals and objectives.
Source: J.P. Morgan, Guide to the Markets, Q2 2015. All indices are unmanaged and may not be invested into directly.
We believe that the market continues to trade within a range because two market forces are at odds with one another and will continue to work against each other for the next several months. The positive market forces are the strengthening market fundamentals and rising oil prices. Fundamentally, the U.S. economy keeps getting stronger with job numbers, earnings, and GDP growth all continuing to rise, even if they occasionally miss estimates. Oil has also started to rebound which has also helped to spur market growth. The negative forces are the continued anxiety surrounding the global markets and a particularly contentious political cycle. Globally, the Chinese economy is a total mystery to many investors and companies alike. As China continues to experience slower growth, it could have a negative effect on demand for U.S. goods and services. U.S. presidential elections also tend to cool the markets, and with the current election being more contentious than any in recent memory, there is a good chance we will remain tied to our current trading range until after November.
On top of it all we are approaching the summer, which is historically a slow time for the markets. Traditionally, trading volume drops during the summer, with the lowest volume days of the year occurring in August. Low volume, however, does not mean low volatility. With less traders on the floor (or behind their computers), there is less activity to balance out one-sided trades, so in some cases, we can even see an increase in price fluctuations 2.
Here at Rocco & Associates, we maintain that volatility is here to stay, but we are much happier heading into the summer up on the year than down. That being said, it is important to remember that the market will continue to fluctuate in the short term. And while it might be tempting to sit out the swings, it is important to remember that “time in” is crucial so you can be ready for any potential big moves to the upside.
1 J.P. Morgan, Guide to the Markets, Q2 2015
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the presentation may not develop as predicted. Stock investing involves risk including potential loss of principal. No strategy can ensure success or protect against a loss.