by Scott Ronalds
Stock market volatility was remarkably low in 2017. Our Income Fund manager (Connor, Clark & Lunn) produced a great chart that illustrated just how unusual the year was.
Those days are over. Volatility is back. The last few trading days have been turbulent, and the media is making sure you know about it with headlines like “Dow Suffers Worst Plunge Ever”. It’s important to put the recent pullback in perspective, however.
Let’s start with that Dow headline. The Dow Jones did suffer its biggest point loss ever on February 5, but it was nowhere close to its biggest loss in percentage terms, which is what really matters. The index was down 4.6% on Monday. A sharp decline, for sure, but the Dow has seen bigger one-day drops more than 20 times since 1960 (in percentage terms).
From their recent peaks earlier this year, U.S. and Canadian markets are down roughly 6% (after today’s rebound). Some global markets are down slightly more. Yet, because most markets saw double-digit advances in 2017 (and previous years), stocks have only given back a modest portion of their gains.
The question you’re probably asking is whether this is a short-term pullback or the start of a much bigger selloff. We don’t know. Nobody does. That said, we’ve been positioned defensively in our Founders Fund in anticipation of a cooling off period in the markets. We’re holding less stocks and bonds than normal, and quite a bit more cash. If the volatility persists, we’ll look to put some cash to work.
We feel it’s too early, however, to do any larger scale buying (or selling). Our managers share the same view. If we do make any changes to our funds in the coming weeks, we’ll report back.
In the meantime, we encourage you to lean heavily on your investment plan at times like this. And if you need counsel or a sounding board, give us a call at 1-888-888-3147.
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