market Volatility

Volatility: Back Again

Volatility is back again. As the equity markets continue their ups and downs, investors would be prudent to remember that volatility is a common part of the markets.

Just how common? Over the past 25 years, the S&P/TSX Composite index fell in over 38 percent of the time, month over month.1 Over a 40-year period, this reached almost 40 percent, demonstrating just how frequent downward market movements are.

More recently, however, equity markets have been relatively placid. In fact, in 2016 and 2017, the index fell in only 20 percent of the time, month over month. We have experienced an unprecedented bull market run that has lasted for almost nine years. During strong market times, equity prices can have the tendency to overshoot their underlying fair values and sometimes a pullback is necessary.

Longer-term investors should keep in mind that many of the positives that got us to our current financial market health are still in place: growth continues, and every major economy globally is expanding, unemployment rates are at some of their lowest levels and corporate earnings continue to be strong. Even oil prices have continued their moderate climb, which may be good news for Canada’s resource-based markets. South of the border, sweeping U.S. tax reform measures passed in December are expected to further stimulate growth.

What about your own portfolio? This is certainly not the time to worry or make abrupt changes. If your holdings are keeping within the objectives set out in your plan, you likely have few serious concerns. Of course, adjustments may need to be made along the way, but your investments are designed to meet your needs over the longer-term regardless of the normal periods of volatility that occur in the markets.

At the same time, it is worthwhile to remember that, more often than not, past periods of consolidation resulted in a snap-back to new highs, usually without warning. Seasoned investors may look for ways to turn lower prices to their advantage and build their portfolios, when others may be fearful to act. Downward movements should be welcomed by those looking to expand their investment positions.

Have patience and keep these things in mind as volatility returns and we weather the inevitable short-term swells of the markets.

Note: 1. S&P/TSX Composite index monthly close to 12/29/2017.