Over the last few days we have all observed the apparent comeback of volatility, which has been mostly absent over the past year. While the market sell-off has understandably unsettled many investors, we are encouraging our clients  not to be spooked by what we view as “normal” market behavior, bearing in mind that we have enjoyed surging markets with essentially rock-bottom volatility over the past year.

The below chart reflects the historical calendar-year maximum drawdowns for the S&P 500 - that is, the most severe loss from "peak" to "trough" before a new peak is achieved. The chart makes clear that these pullbacks occur frequently and can be severe, even in the context of a calendar-year return that is ultimately positive.

We also believe the placid 2017 environment was a function of extremely low levels of volatility (-3% max drawdown) relative to long-term historical experience. A resurgence of volatility was to be expected and is not always unhealthy for markets, particularly in the context of strong economic fundamentals.

For a more in-depth discussion of the current environment, we encourage you to request our latest audio commentary and presentation discussing current economic and market conditions.



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