Summer Volatility and Beyond

Summer of last year on a nondescript Thursday, May 21, 2015 to be exact, the S&P 500 closed at 2,130.82.  That's the highest the index had ever closed up until that point, and it remains the record as June 14, 2016, and probably beyond. The highest closing since that record was set is currently sitting at June 8, 2016 with a closing price of 2,119.12, and the lowest during that time period was on February 11, 2016 at 1,829.07. Pricing has remained relatively flat, with some high volatility along the way. It's not the most favorable of markets for investors, but it's not so uncommon either to see this much volatility and it is certainly not uncommon to see gains being so elusive.

The question of "Why", well, there are a great number of mitigating factors that have us where we are right now.  Many of the reasons for the current market situation are indeed areas that we've previously discussed in regards to fears of recession.  Some of the more major reasons, in general terms, are worries about global economic growth, the oil industry, S&P 500 profits declining for three consecutive quarters, and of course the exceptionally odd election cycle which is breeding its own special level of uncertainty. We are however starting to see a shift towards a better outlook with a number of the mitigating factors such as oil prices improving some from their lows and the dollar gaining stability against the major currencies among other indications. The election outlook, well that depends on who you are now doesn't it.

One other rather large item that had been adding to volatility was Brexit and the run-up to the July 23 UK referendum to vote on remaining in the European Union. This happened because proponents of the referendum were pushing for it on the lines that the people of the UK haven't had any say on the issue since 1975.  The run-up to the vote itself was the cause of some of the highest volatility in the European markets in a decade. The UK holds more weight than say Greece, so any changes will have a larger effect over Europe and ripple over the rest of the world.

St. Louis Federal Reserve President James Bullard said recently on the possibility of the UK voting to leave, "the next day nothing happens." The UK leaving will take much planning, and the process will take time and the larger ramifications of the action will come later after the roadmap is set. Nothing may have happened the next day in terms the UK actually removing itself from the EU however, plenty happened with the markets the next day. As we've discussed before, investing and markets can be highly emotionally driven, and though nothing was fundamentally changed the next day the vote to leave quickly drove high volatility in markets around the world, high volatility and significant drops.  The Monday after the vote the pound hit a 31 year low against the dollar with an 11% drop, the S&P 500 itself dropped 10% the first two trading days after the referendum.

Much of that early stage volatility as settled down some and we're seeing markets across the world begin to climb again. Tuesday, June 28, had the S&P climb 1.78%, and the Dow Jones industrial average rose by 1.57%. The UK separation will resolve itself one way or the other, but something else will eventually crop up to take its place.  There is always something lurking around the corner that has the potential to increase short term market volatility, as has been evidenced especially well over the last year.

This is why it's important to focus on long term strategy and goals, and not getting mired in the day to day muck.  Remember we are investing for the future; we are not investing for today. It is all too easy to focus on the short term view, especially with the deluge of news, information, and just plain noise out there.

High volatility and the market's struggles to find gains certainly make a lot of investors nervous, and often reactionary.  Reactionary is precisely where we don't want to be and why discipline is so important.  The ups and downs are expected and portfolios are planned accordingly for this.  The goals are in place to ward off reactionary statements, and to remind us that we are not investing for today; we are investing for the future, your future.


Market Commentary Disclosures:

The information contained herein is obtained from sources believed to be reliable but its accuracy and completeness is not guaranteed. Due to market volatility, any opinions expressed herein are subject to change without notice. Investors should be aware that there are risks inherent in all investments, such as fluctuation in investment principal.

The S&P is a market-cap weighted index composed of common stocks of 500 leading companies in leading industries of the U.S. economy.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

Indexes are unmanaged, do not incur management fees, costs and expenses cannot be invested directly. Past performance is no guarantee of future results. Returns do not include sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. Index returns include reinvestment of all dividends.

Neither NEXT Financial Group, Inc. nor its Representatives give tax or legal advice.