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

  • Asian stocks flat as support grows for U.S. interest rate hike

    Economic CTV News
    SEOUL, Korea, Republic Of - Asian stock markets were largely flat on Thursday with investors in the U.S. markets going on a Thanksgiving holiday and the Fed minutes largely in line with investor expectations that the Fed will soon raise interest rates for a third time next month. Source
  • First LNG shipment leaves B.C. for China as industry looks to expand exports

    Economic CTV News
    SURREY, B.C. -- FortisBC says it has shipped 950 gigajoules of liquefied natural gas from Vancouver to China, marking the industry's first shipment to the Asian country. The move is part of a pilot project aimed to determine long-term feasibility of B.C. Source
  • U.S. commission alerted to review allegations against TripAdvisor

    Economic CTV News
    BOSTON -- The U.S. Federal Trade Commission could take action against TripAdvisor after the Massachusetts-based travel company was accused of deleting hotel reviews that contained allegations of rape and other crimes. Several people told the Milwaukee Journal Sentinel this month they were sexually assaulted at Mexican hotels and resorts but the online reviews that mentioned the crimes were taken down. Source
  • Trump SoHo to shed 'Trump' amid reports of sagging business

    Economic CTV News
    NEW YORK -- The Trump SoHo hotel is dropping the name it shares with the U.S. president. The Trump Organization said Wednesday that it is ending its licensing deal with the New York hotel amid reports that the property has struggled to attract business. Source
  • Wellsite pipeline leak spills 560 barrels of oil into northern Alberta swamp

    Economic CTV News
    CALGARY - The Alberta Energy Regulator says a pipeline owned by Calgary-based Mount Bastion Oil & Gas Corp. has leaked about 560 barrels of an oil and water mixture at a northern Alberta wellsite. AER spokesman Jordan Fitzgerald says the regulator has staff supervising cleanup by the company at the site about 65 kilometres northwest of Red Earth Creek, which is about 420 kilometres north of Edmonton. Source
  • Wellsite pipeline leak spills 560 barrels of oil emulsion into Alberta swamp

    Economic CTV News
    CALGARY - The Alberta Energy Regulator says a pipeline owned by Calgary-based Mount Bastion Oil & Gas Corp. has leaked about 560 barrels of an oil and water mixture at a northern Alberta wellsite. AER spokesman Jordan Fitzgerald says the regulator has staff supervising cleanup by the company at the site about 65 kilometres northwest of Red Earth Creek, which is about 420 kilometres north of Edmonton. Source
  • Uber customers torn between scandals and service

    Economic CTV News
    DETROIT -- Uber has managed to hold the title of world's largest ride-hailing service despite its seemingly endless string of scandals. Its latest misbehaviour involving a data breach coverup revealed this week could be the impetus for people to ride elsewhere -- or keep looking the other way. Source
  • Freedom Mobile announces iPhone X dates, provides update on network rollout

    Economic CBC News
    Freedom Mobile will begin taking orders for the Apple iPhone X and iPhone 8 models starting Friday, with the smartphones in its stores on Dec. 8. While that's more than a month after Canada's three national wireless carriers began selling the iPhone X, it will be the first time Freedom Mobile has a full roster of Apple smartphones to offer its customers. Source
  • Highlights of sweeping new Ontario labour laws, including a minimum wage boost

    Economic CTV News
    TORONTO -- Ontario's Liberal government passed a host of changes to labour laws Wednesday. Here are some highlights of the legislation, including the centrepiece minimum wage increase: -- Minimum wage rises from $11.60 an hour to $14 on Jan. Source
  • Canadian grocers expand online services after Amazon acquires Whole Foods chain

    Economic CTV News
    VANCOUVER -- Metro Inc. is looking to expand its online grocery offerings to Ontario next year, making it the latest Canadian retailer to ramp up its e-commerce options in the face of potential competition from Amazon. Source