Taking Stock of the Recent Volatility

Market pullbacks and violent spikes in volatility can be unnerving, as they were last week when the Dow Jones Industrial Average fell more than 800 points on Wednesday, October 10th, and more than 540 points on Thursday, October 11th. As we wrote in the first quarter of this year after a swift decline in U.S stocks, it is important for our investors to not panic and let their emotions take over when turbulence hits portfolios. Rather, these periods should be used as a reason to analyze and assess investment objectives and investment time horizons for each asset class.

Everyone is asking if this recent selloff is the prelude to an even steeper correction after the relatively steady march higher we have experienced in recent years. Instead of trying to guess or time the market, we believe our investors should stay focused on the long term, be selective and not let emotions lead to bad decisions. As we have written many times over the past years, we would argue that volatility returning to the markets is "normal" and that the unprecedented low-volatility equity market we have enjoyed is an abnormality.

The bottom line is that market volatility will remain prevalent as the investment community adjusts to ever changing macroeconomics, fiscal, monetary and earnings data. It's of my opinion that the high frequency and algorithm trading is now making a healthy and fundamental sell off, that used to take a quarter or so to develop, happen in a much shorter duration. I would like to note that this does not make the markets less or more efficient, it just means movements happen faster than they did in the past. These sudden movements may create miss-priced assets in companies, sectors and interest rates allowing potential opportunities to purchase long term investments at more attractive entry points.

As mentioned above, pullbacks are not a time to panic but should be used as a reason to analyze and assess your individual situation for short, medium - and long - term holding horizons. If you find that has changed for any reason, please reach out to us so we can customize a solution for your changing needs.

Be on the lookout for our Q3 2018 Economic and Market Perspective that will be published shortly along with a piece I'm currently writing on the U.S Midterm Elections, and what that upcoming contest may signal for the economy and key asset classes.

Have a great week and please call or email if you need anything at all.

These are the opinions of Robert O’Braitis and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is no guarantee of future results. Diversification and asset allocation strategies do not assure profit or protect against loss. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.