Comments Off by in CMW News
February 23, 2018

On Friday afternoon the 2nd of February we signed off our last Money Pulse saying, “It’s going to be interesting to see the trade-offs this year between continued progress in the economy and potential re-emergence of market volatility. Hang on for what we anticipate will be a good ride!”

We woke up the following Monday to the realization that we had inadvertently nailed it with the global market in free fall. Really! It wasn’t prescient at all; our crystal ball remains dormant. Rather, it was one of those rare moments when timing and vigilance just seem to collide.

Recognizing the moment, we issued a brief bulletin that morning as the exchanges opened in the US. “The media will tell us the ‘market is collapsing!’ We say, she’s ‘letting off steam’ and can’t wait to see which asset classes will present the best ‘bargain basement sales’ in our routine rebalancing activities… No, the sky isn’t falling!”

The market has just experienced its first technical correction (a drop in the market of 10% or more) in almost two years. People forget that the market ‘corrects’ on average once every year or so. Investors, who are also people directly affected by such unpredictable events, are especially sensitive to this kind of negative surprise. So forgetting is not helpful to maintaining the perspective essential to disciplined behavior.

Goldman Sachs Research provides some perspective here. “There have been 16 drawdowns (corrections) of 10%+ since 1976. Of the 16 corrections, only five occurred around a recession. Of the remaining 11 non-recession episodes, 1987 was the only one that turned into a bear market.” And we would add that though the ’87 crash was remarkable and did reach ‘bear market’ territory (a drop of 20% or more), very few recall that this was a short-lived shock, lasting a little more than 2 months as the Dow ended the year on a plus note.

Goldman goes on to say that a recession is unlikely at this time. “Our economists believe the probability of a recession remains well below average, given strong global GDP growth and loose financial conditions.”

We continue to hold the same attitude going forward as we offered back in late November of 2017, which the S&P 500 is now ahead of again. Remember, the market looks ahead at likely economic activity. Again we point to the very positive outlook for the US and global economies. Ataman Ozyildirim, of the The Conference Board noted that, “The U.S. LEI accelerated further in January and continues to point to robust economic growth in the first half of 2018…consumers’ and business’ outlook on the economy had been improving for several months. The leading indicators reflect an economy with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets.”

Although a full recovery from this sudden reintroduction of volatility has not yet been fulfilled, it looks like we’re better than half way there! We don’t promise to be all the way there immediately or that volatility is now behind us; far from it. However, we DO believe that disciplined investors will be rewarded for their patience and fortitude over the remainder of this year and potentially into 2019. So hang in there!


Grant, K. (2018, February 12). Goldman Sachs Wants Investors to Focus on These Stocks During Market Correction. Retrieved from