After over a year of very low volatility, this past quarter awoke investors from their slumber with quite a few sharp jolts. Not wanting to be upstaged by basketball tournament upsets, the Dow produced its own “madness” by dropping 724 points Thursday, March 22nd, another 424 points March 23rd, and after a brief rally, another 344 points on March 27th. The combination of these “jerks” and “jolts” and other more subtle market moves formed a “W” pattern throughout February and March that we believe is a very bullish technical formation for a continued secular bull market.
You may be wary of us continually suggesting we are in a “secular bull market.” Many times it does not feel like a bull market. Many people believe a 20% rally or a 20% decline represent bull and bear markets. However, a secular bull market tends to last over fourteen years and compound money at a double-digit return each year. The 1949-1966 secular bull market produced average returns of 11.41% per year on the S&P 500. The 1982-2000 secular bull market produced average yearly returns of 14.38%.1
However, there were significant pullbacks within those secular bull markets. Many end the 1949–1966 secular bull market in 1956 when the stock market sunk ~21% when Egypt attempted to take over the Suez Canal. But, as the chart below shows, that did not stop the upward trend. Many also end the 1982-2000 secular bull market prematurely with the 1987 crash. Although it made investors uneasy, as you can see in the chart, it did not end that bull market either. Our Chief Investment Strategist, Jeff Saut, believes the current secular bull market is going to be bigger than either one of those secular bull markets.1
If it seems like the market has been much more volatile in 2018, it’s because it has been. At no point in 2017 did the market correct more than 3%.3 To put the numbers in perspective, 2017 was a 32-year low in volatility, with only 3.2% of the trading days last year producing a change of 1% or more. In 2018, the S&P 500 has moved 1% or more 18 out of 38 trading days (47% of those days.)2
Recent volatility to the downside seems to come from steel and aluminum tariffs announced by the Trump administration. However, the tariffs announced so far only constitute ~ 6% of U.S. imports and 10% of Chinese exports (only 0.25% of their GDP).2 We believe the long-term impact of this announcement will be minimal.
In summary, although the “mad” market volatility could extend beyond March, we believe it is another healthy leg in this secular bull market. As always, we believe the long-term market trend is influenced by earnings fundamentals and economic growth rather than the day-to-day news cycles.
We trust you and your family are doing well. Please do not hesitate to give us a call if there is anything we can do to serve you.
Sincerely,
Malcolm C. Tarver, III
Senior Vice President, Investments
Certified Investment Management Analyst ®
1Investment Strategy, Jeff Saut, March 12, 2018
2Portfolio Strategy, Mike Gibbs, March 23, 2018
3CNN.com, November 26, 2017
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