Volatility is back. It's a shock for stock market investors who have enjoyed predictable returns over the past decade. In seven of the past nine years, the S&P has boasted double-digit returns. In 2017, the S&P 500 returned 22%.
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The S&P 500 lost 6.2% in 2018, the worst showing since the Great Recession.
Even more unnerving, the action is erratic. Last year saw the return of mad market swings. Oversold declines followed by false rebounds. On five different days last year the Dow Jones moved 1,000 points or more. Moves that big have only happened eight times in history. The fact that five of them were last year is significant.
But it is a return to a more normal condition for stock investors. Spikes in volatility have always been part of Wall Street's landscape. Check out the chart below of what's called rolling 30-day volatility, going back to 1928. You could argue, deep in the longest bull market in history, more volatility is natural.
Judging by the headlines, investors should get used to it. 2019 is a year with three big challenges.
Uncertainty about the global economy, particularly in Europe and China, has rattled investors.
Trade tensions between the United States and China have yet to be resolved.
And investors are worried about interest rates.
If the Fed raises rates too quickly, it could slow the economy too much and even trigger a recession.
But certainly there are no signs of recession in US economic data, and on the contrary, jobs figures remain quite strong.
It means headline risk for investors around every corner. And that spells more volatility.
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