It's Always Something

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by Ralph Cole, CFA
Executive Vice President of Research

Week in Review

With trade tensions picking up, the S&P 500 experienced a wild ride this week, ending the week declining more than 1 percent. The first week of trading in the second quarter experienced huge intraday swings, highlighted by Wednesday’s volatility. At one point on Wednesday, the markets were down 1.6 percent. At another point, it was up 1.4 percent before closing 1.2 percent above the previous day. That’s a full 3 percent swing in one day. To put it into context, that is an entire year’s interest on a 10-year Treasury of just 2.79 percent. 

It’s Always Something

As we came into the year, we communicated to clients that volatility would pick up and that has indeed been the case. The S&P 500 had gone two years without a 5 percent correction and the market has seen growth for 14 straight months—two things that have not happened in S&P 500 history. We conveyed at the beginning of the year that this could not continue, in light of the fact that we are 10 years into an economic cycle where the Fed is raising interest rates more aggressively. To quote one of our favorite market strategists, Roseanne Roseannadanna, “It’s always something. If it ain’t one thing, it’s another.”

Initially, the market sold off on inflation fears, but now the correction is being driven by President Trump and China as they spar over tariffs. We don’t mean to belittle the impact that tariffs might have, but we also want to keep them in their context. Below is a chart that details the current dollar amounts being bandied about relative to GDP in the U.S., China and the world.

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We believe that we are in the middle of a correction process, which happens every few years and average about a 13-percent drop. The difference between a correction and a bear market is that corrections happen during economic expansions while bear markets tend to occur during recessions. Below is a chart of the last seven corrections during “non-bear markets” of greater-than 10 percent going back to 1982. In this chart, we overlaid the current correction going back to the recent market peak of January 26.


This data is not intended to provide the roadmap to this particular correction, because each one has its own idiosyncrasies. Hopefully this illustrates the process of sell-off. Earnings season will kick off in earnest next week, and it just may be the catalyst that will take this market higher. At this point, we don’t know exactly what the catalyst will be … “but it’s always something.”

Takeaways for the Week

  • As expected, market volatility has returned due to recent trade war concerns
  • We believe earnings will lift the market higher in coming months