A Vital Asset Now: An Even Keel

Seventeen days ago, the S&P 500 was at record highs. Yesterday, it had its worst day since 1987, entering bear market territory. And today? Its 10^th-best rise on record. If you find the huge downs and ups disorienting, you are not alone. Heck, we feel it too, and we do this for a living. It is tempting to read into the huge swings—up or down—and draw large conclusions. Some will declare the end must be nigh following a week with such steep climbs and dips, and maybe that will prove to be correct. But no market turning point is clear until you have several weeks’ or months’ hindsight. Additionally, no turning point is predictable.

In our view, these ups and downs are a call for calm on both ends of the emotional spectrum. We suspect getting too carried away by a steep jump is as dangerous as getting hung up on a drop. The movement in either direction just doesn’t predict what lies immediately ahead.

Until we get some distance on it, we won’t know where the low is. To us, the best course of action now is doing your best to keep an even keel. If you let today boost your expectations, and we end up getting another downdraft, it could be that much more difficult to swallow. That could put you at risk of making counterproductive moves. We are empathetic toward anyone who wants to breathe a sigh of relief. But always remember there is no such thing as an all-clear signal.

So, our advice is the same as it would be after an awful day: Breathe deep. Remember volatility comes in clumps. Those clumps feel huge as you live them, but reacting to that feeling is, in our view, a recipe for trouble. They also begin and end without warning. Both the panic and the relief feel real, and the shift between them is jarring. To us, not letting the emotional volatility affect your investment decision making is a vital asset for investors today.