“People are often more willing to act based on little or no data than to use data that is a challenge to assemble”

Robert Shiller


It was inevitable that at some point, the markets would experience a pullback.  February provided just that event, with stocks experiencing their first monthly decline since October of 2016.  It was not surprising that we had a decline in stock prices.  What was surprising was the speed of the pullback, which saw broad market indices fall over 10%, in just two weeks at the beginning of the month.  Rapid drawdowns can be stomach churning but provide a great example of how investors should best respond when assessing their portfolios.  An emotional response would suggest that we sit on the sidelines while volatility works itself out and markets settle down.  An informed, data driven response would suggest the opposite.

Source: Lord Abbett

Source: Lord Abbett

The chart above shows the returns of an investment in the S&P 500 of $10,000, made in 1992, held through the end of 2017.  The ending value of that investment was $105,117.  If you missed the 10 best days of the last twenty-five years, the investment only increased to $52,460.  This is fairly intuitive: we want to own stocks when the market does really well.  Yet where the challenge comes in is that many of these very strong days in the market were preceded by incredibly volatile days.  For an investor to get the benefits of strong returns in the market, they must also accept the emotions that come with volatile down days in the market.  On those days, our gut may tell us to sell or go to cash; however, the data tells us that we must remain vigilant or even look for opportunities to invest further.

In spite of recent market volatility, economic conditions remain positive.  Jobless claims (a measure of employment health) hit their best level since 1969.  In the most recent quarterly earnings report, over 75% of S&P 500 companies beat both their earnings and sales targets.  Companies have suggested that around 40% of the savings they experience from tax cuts will go to buybacks and dividend increases, which provides support for equity prices.  Though we continue to believe we are in the later innings for the U.S. economic expansion, the fundamental drivers of continued growth remain positive.





Investment advisory services offered through Independent Financial Partners, a Registered Investment Adviser

WhartonHill Investment Advisory is not owned or controlled by Independent Financial Partners

The opinions voiced in this material are for general information only and are not intended to provide specific investment advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. 

All data is from Bloomberg, Wall Street Journal, and Morningstar as of 3/1/2018