Get used to it: Big drops for stocks are back again

NEW YORK -- Yes, this is scary.

Stock prices plunged again Friday and are down more than 8 per cent in just two weeks, an unprecedented slide for a start of a year.

See Full Article

The vicious drops feel even more unsettling because they're such a departure from the placid and strong returns that investors had been enjoying for years. Like vacationers returning from a warm beach to a slushy commute to work, the shock of change is making something already painful even more so.

Now investors just need to get used to it, analysts say.

"It was easy for many years," says Bill Barker, portfolio manager at Motley Fool Asset Management, whose three mutual funds control about $600 million. "That was not an accurate display of what happens in the market all the time."

The painful return of big price swings serves as a reminder that investing in stocks can be harrowing, especially if investors focus on the day-to-day moves.

That's not to say investors can't still win over the long term. Over the past 12 months, an investor in an S&P 500 index fund has lost nearly 5 per cent, including dividends. But over five years, they are up a total of 60 per cent, and over 10 years, they are up 79 per cent.

It's just that analysts expect the volatility to continue. The remarkably calm stretch from late 2011 through last summer was an anomaly.

From 2012 until last summer, investors basked in a market where the Standard & Poor's 500 rarely had a bad day. The widely followed index fell more than 1 per cent less often than Los Angeles has rainy days, about 8 per cent of the time. During that span, the S&P 500 also completely avoided a "correction," which is what traders call a sustained drop of 10 per cent.

It wasn't until this past August when the S&P 500 snapped into its first correction in nearly four years, felled by concerns about China's slowdown and the fragility of the global economy. The worries have resumed this year. The S&P 500 fell back into a correction, and it has already had six days where it's lost more than 1 per cent.

That means the S&P 500 has had that big a drop in 22 per cent of the trading days since Aug. 20, more than the historical average.

But when looking at the last five years as a whole, the recent spurt of volatility has merely pulled the market back to "normal." The S&P 500 has had a 1 per cent drop in 11 per cent of trading days in the last five years, the same as its average over the last 50 years.

The latest big drop came Friday, when the S&P 500 fell as much as 3.5 per cent and at one point erased 15 months of gains.

Besides China's sharp economic slowdown, analysts see other reasons for volatility to continue. Tensions in the Middle East are high, and the plunge in prices of oil and other commodities are raising concerns about global economic growth and decimating the profits -- and share prices -- of materials producers.

What makes the volatility even more painful to endure is that many analysts are forecasting stock returns to be lower this year and in the coming years than in the recent past. So investors are facing the prospect of higher risk without much higher reward.

The forecast for big swings could encourage some investors to try to time the market, attempting to jump in to catch stocks when they're rising and jump out during downturns. That's usually not a good idea, even for pros. Strategists at Goldman Sachs' investment management division wrote in a recent report that it's better to remain a long-term investor, and not become a short-term trader.

"The vast majority of traders -- including most macro hedge fund traders -- have failed to capitalize on such moves," the strategists wrote.



Advertisements

Latest Economic News

  • In signal to Trump, China, Iran say nuclear deal must stand

    Economic CTV News
    BEIJING -- The foreign ministers of China and Iran on Monday urged governments not to violate the deal that limits Iran's nuclear activity in exchange for the lifting of sanctions, in remarks apparently directed at U.S. Source
  • Italy hit by market volatility after referendum defeat

    Economic CTV News
    MILAN -- Italian voters dealt Premier Matteo Renzi a resounding rebuke early Monday by rejecting his proposed constitutional reforms, plunging Europe's fourth-largest economy into political and economic uncertainty. Renzi announced he would quit following Sunday's referendum vote, in which 60 per cent of voters rejected his proposals and signalled they wanted a change in political direction. Source
  • Alberta Premier Rachel Notley heads to B.C. on Monday, spokeswoman confirms

    Economic CTV News
    EDMONTON - A spokeswoman for Rachel Notley says the Alberta premier will visit British Columbia on Monday. Cheryl Oates confirmed the visit would occur when she was asked via text over the weekend, but did not respond to emails asking for details. Source
  • Donating can make a big difference for charity -- and your tax bill

    Economic CTV News
    TORONTO -- The last few weeks of the year are the busiest for Canadian charities with people who rush to get in their last-minute donations before the Dec. 31 deadline.Scroll down or click here to vote in our poll of the day More than 24 million Canadians gave away a total of $12.8 billion to charities in 2013, with the average gift per donor being $531, according to the most recent data from Statistics Canada. Source
  • Central banks are intrinsically conservative to keep our money safe: Don Pittis

    Economic CBC News
    Which is the best economic strategy: delayed gratification, or live for today? In the era of Donald Trump, it seems inevitable that the entrepreneurial urge to make hay while the sun shines is headed for a collision with the restraining forces of central banking. Source
  • Asian stocks tumble after Italy rejects constitutional changes

    Economic CTV News
    BEIJING - Asian shares tumbled Monday after Italian voters' rejected constitutional changes, raising questions over whether Italy will stay in the European Union and keep using the euro. KEEPING SCORE: Sydney's S&P-ASX 200 index dropped 1 per cent to 5,391.40 points and the Shanghai Composite Index lost 0.9 per cent to 3,215.30. Source
  • Global shares mixed after Italy rejects constitution changes

    Economic CTV News
    BEIJING -- Asian shares tumbled Monday while Europe opened higher after Italian voters rejected constitutional changes, raising questions over whether the country will stay in the European Union and keep using the euro. KEEPING SCORE: In early trading, Germany's DAX added 0.8 per cent to 10,599.05 points and France's CAC-40 gained 0.3 per cent to 4,542.94. Source
  • After major victory, Dakota Access oil pipeline protesters to defy deadline

    Economic CTV News
    CANNON BALL, N.D. -- Protesters celebrated a major victory in their push to reroute the Dakota Access oil pipeline away from a tribal water source but pledged to remain camped on federal land in North Dakota anyway, despite Monday's government deadline to leave. Source
  • North Dakota pipeline protesters vow to stay despite victory

    Economic CTV News
    CANNON BALL, N.D. -- Protesters celebrated a major victory in their push to reroute the Dakota Access oil pipeline away from a tribal water source but pledged to remain camped on federal land in North Dakota anyway, despite Monday's government deadline to leave. Source
  • Euro tumbles after Italy's PM resigns, loses referendum

    Economic CBC News
    The euro tumbled in early Asian trade on Monday after Italian Prime Minister Matteo Renzi said he would resign after conceding defeat in a referendum over his plan to reform the constitution. The euro dropped 1.3 per cent to $1.0505 US, falling below its 1 1/2-year low of $1.0518 touched late last month, and testing its key support levels where the currency has managed to rebound in the past couple of years. Source