Claire Corlett

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Fisher Investments on Market Volatility [2018]

Fisher Investments on Market Volatility [2018]


Are you surprised at the volatility this year,
and is that normal at this stage in a bull market? We’re not surprised at the volatility this
year. I think some clients might be, only because
what you saw last year, stocks were not very volatile at all. Very low levels of volatility. Yes, this year, stocks are more volatile than
last year, but when you compare the volatility of this year to average levels of volatility,
it’s about average. There’s nothing really extraordinary about
volatility this year. I think one of the things that clients often
mistake volatility for market returns. This year, the market hasn’t been up huge
or hasn’t been down huge. When you compare the return pattern of the
market this year to the return pattern of last year, people sometimes confuse that with
higher levels of volatility. The other thing that people do is they feel
volatility in the near present, and they forget about volatility of the past. Actually, in my lifetime, volatility has been
irregularly decreasing, not increasing. People don’t think of it that way because
they forget about that distant past that was volatile, but if you go back and look at history,
20 years ago, 40 years ago, and then before my time, 60 years ago and 80 years ago, markets
were much more volatile than they are now. Markets, with all of the varied participants
from all over the world and all of the varied instruments that allow people to trade the
same things against each other with more liquidity, have actually made markets less volatile. It’s just whatever volatility we have now,
it picks up a little bit from what we had just a little bit before, it makes people
like, oh, this is just a lot of volatility. Markets are not very volatile these days. In a lot of ways, what we’ve seen this year,
particularly early in the year, really was a classic correction in the midst of an ongoing
bull market. If you remember, this year got off to a great
start. The first month or so was phenomenal. Then you had a real steep drop in the market. Then you’ve had somewhat of a gradual recovery,
but it’s got all the characteristics you usually see in a correction. Remember, a correction is a short, sharp,
steep drop in stock prices. Usually features one or several big, scary
stories that get blown out of proportion. Then, ultimately, the investors get over those
types of concerns. This time around, you had the big, short,
steep drop initially. You had the bulk of the drop in this market
early on happen in just a number of days, actually. It was really dramatic. It was tied to concerns about inflation and
interest rates. That morphed into fears about trade and tariffs. But slowly but surely, the market’s been recovering
from that. Yes, this has been a slightly more volatile
year, although not abnormally volatile, but we think this has been a classic correction
year in the midst of an ongoing bull market. This is just about the most weak, feeble-minded
correction that you could possibly imagine. In the scale of corrections in history, this
just barely qualified to be negative enough to be a correction. To Mike’s point, this correction took sentiment
way down, relative to the size of the correction. The fact is that normally you need to have
a much bigger correction to take people and move them down in sentiment as much as this
one did. That, as Mike pointed out, is very bullish. This relatively meager little correction in
the scale of historical corrections could set back sentiment enough to create kind of
a refresh so the market could move forward. That’s a pretty nice statement about what
may be ahead. For views on current events in the world of
investing, visit marketminder.com. Updated daily, it offers on-demand access
to Fisher Investments’ most current thoughts on capital markets and the global economy,
as well as our sometimes irreverent commentary. We hope you’ll enjoy it.

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