Recent Market Volatility
As we enclose our Spring Newsletter from KMS, I think a few
comments about recent market volatility are in order.
While the news media dramatized a 500 point drop in the
stock market, a three or four percent drop in the market is not what I would
consider a correction. This is just
normal volatility. There have been
many three to four percent short term drops in the market in recent years.
A market correction is generally considered to be a 10% to
20% drop in the market and to be considered a bear market; it has to run six to
nine months. So a normal correction
on the DOW would be 1,200 to 2,400 points and we haven’t had a bear
market since the bear market which ran from April of 2000 to September of
2002.
Since we have had four great years the market is due for a
correction and perhaps even a bear market.
However no one knows if and when we will get either. But you can be sure the news media will
be publicizing it sufficiently to jar your nerves and be full of advice on what
you should be doing when it happens.
Of course it will all be hind sight but it will be enough to keep your
nerves on edge. Just remember, when
that happens take a deep breath and give us a call.
Now having said all that let me put some things into
perspective. According to the
January Effect Theory (as January goes so goes the year), the stock market
should do just fine this year.
While January was volatile it did end up about 100 points or slightly
less than 1%. Given a 5, 15, 20 and
30 year historical perspective, the DOW should end this year between 13,000 and
14,000. I discounted the ten year
average because it was skewed by the big run up in the 90s (which was
uncharacteristic) and then the subsequent drop during the early 2000s.
Of course we know these are just averages and the market
does anything but turn in historical averages every year. (See page 2 of our
Spring Newsletter)
Hope this helps put the recent market volatility into
perspective, but it wouldn’t surprise me to see an increase in volatility
over the next year or two.
Securities through KMS Financial Services Inc.
520.884.7550
jpw@financial-architects.com
2311 E. Broadway