The Crash That Wasn’t

SeanInsights

2016 got off to a very bad start right out of the gate, with the Dow Jones Industrial Average losing over 1000 points, or about 6% of its value, within the first week of the year. Over the ensuing four weeks, the Dow would fall another 700 points, losing an additional 4% from its January start. By the second week of February, the Dow was almost 17% below its May 2015 high, while internationally, many markets were down 20% or more from that same point last year, the 20% threshold technically signifying a “bear market.”

It was about as bad a start to a year as we saw in 2009, near the market bottom of the Great Recession, and as you’d expect, the pundits were resplendent in their pessimism – pessimism about the price of oil, pessimism about the economy, and, of course, pessimism about stocks. Here were some of the headlines you may have seen during the past quarter:

  • Business Insider: A Stock Market Crash of 50%+ Would Not Be a Surprise (Jan 4th)
  • NBC News: Oil Prices Drive Stocks Rout: Dow Sheds Nearly 400 Points (Jan 15th)
  • NewsMax: Mark Faber says Market Crash Will Rival 1987’s Massive Drop (Jan 26th)
  • MarketWatch: Is the Stock Market Headed for a Repeat of 2008? (Jan 26th)
  • Business Insider: STOCKS CRUSHED AFTER JOBS REPORT (Feb 5th)
  • CNN Money: Don’t expect oil prices to rise soon, IEA warns (Feb 9th, less than a week before – you guessed it – oil prices would start their nearly 50% rise from $28/bbl to almost $42/bbl.)
  • MarketWatch: Japan Stocks Post Worst Weekly Drop Since 2008 (Feb 12th)
  • …and let’s not forget the Royal Bank of Scotland’s Andrew Roberts, who received wide coverage with his “Sell Everything Now!” call on January 12th (and which I wrote about the next day).

Understandably, this wall-to-wall news coverage and its accompanying tone of world-ending doom caused those who were paying too much attention no small amount of angst. I saw some of this manifest itself in conversations with several worried clients (fortunately, none of whom in the end saw the need to change their portfolios based on the news-catastrophe-du-jour).

And so, with that horrible start to the year, one might conclude it was a negative quarter for investors – and especially for those poor souls who lashed themselves to the mast and faithfully rode through the storm. However, such was not the case. By the time Spring had sprung, in most quarters of the globe, markets had largely righted themselves and many, if not most, investors with well-diversified equity and/or balanced portfolios actually earned slightly positive returns for the quarter. Who would have guessed that in the dark days of late January or early February?

As it turned out, the S&P 500 was up about 1.3% for the quarter, and despite ongoing worries about oil and emerging markets, the S&P’s meager return was eclipsed by the two emerging market portfolios most of our clients hold in some proportion, with one being up 7.7% for the quarter, and the other up 8.9%. All in all, 8 of the 11 equity categories we use in most portfolios – including 3 of the 6 international asset classes and both of the primary fixed income / bond categories – were positive for the first quarter, that same quarter that had started off so horrendously.

And so, this past quarter – more than most – offered an excellent object lesson about looking through the haze of media-and-market-induced smoke and panic, and instead of focusing on the news of the day, focusing on one’s own longer term plan, and the positive returns that markets are likely to deliver, if history is any guide – over the course of one’s life and one’s planning horizon. Seldom have I seen abandoning ship in the middle of a market storm work out well, and this quarter would have been no exception. Patience is hard, especially in volatile stretches like we saw during the first five or six weeks of this year, but being patient has historically paid off, and we saw that manifested over the entirety of the first quarter.

As always, I’m more than happy to talk over any of this, and how it may (or may not) impact your plan. If you’d like to do so, or if there is anything we can help with, please let me know. In the meantime, I hope you’re enjoying this amazing Spring-like weather we’re having (at least here in Colorado), and if Spring hasn’t found you yet, I hope that it will soon.