In our view, the recent stock market pullback is not consistent with our current fundamentally strong global economic environment. This sell-off has partially been the result of strong data, which has prompted the Federal Reserve to announce plans to raise rates more quickly in the coming quarters, in addition to periodic geopolitical friction with a focus on tariffs, China, and oil. We see this recent market performance as similar to a normal correction after a strong rally.
While many of these forces could present uncertainty in the markets in the near-term, we do not believe this downturn is here to stay or an indication of a looming bear market or recession. Fundamentals will prevail. In fact, investor expectations for U.S. economic growth and interest rates
have not changed much from a year ago.
Although there can be no guarantee that the market will follow historical patterns, that is exactly what happened earlier this year. The U.S. stock market (represented by the S&P 500 Index) peaked January 26, 2018 before selling off by 10% between late January and early February. This aligns with the pattern seen during the last 10 years. There have been 20 stock market pullbacks of -5% or greater. The median pullback was -7.6% in these instances and lasted an average of 41 days. Six months after each correction the S&P 500 has returned, on average, +14.8%.* This market behavior is central to our long-term view and rationale for preventing a client from selling at correction lows, then missing a potential market run.
With an appropriate asset allocation, regular rebalancing, and thoughtful foresight, investors should be able to ride through market volatility to come. As unnerving as sharp sell-offs can be, our core philosophy is that clients should stay invested through a diversified portfolio selected with their comfort for volatility, return objectives, and financial plan in mind. Patience is required during times such as this and will help enable investors to achieve their long-term goals.
*Source: FactSet. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The S&P 500 is an unmanaged index and cannot be invested into directly and is not indicative of the performance of any investment.
Securities and insurance products are offered through Univest Investments, Inc., member FINRA/SIPC and a licensed insurance agency. Investment advisory services are offered through Girard Partners, a Univest Wealth Management Firm. These affiliated companies are licensed subsidiaries of Univest Corporation of Pennsylvania. Products and services offered are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including possible loss of any principal amount invested. Trust services are offered through Univest Bank and Trust Co.