December 28, 2018
The major U.S. indexes ended up almost 3% this week, following a week of dramatic swings. Despite the gains, the indexes are all poised for annual losses for the first time since 2008, while the S&P 500 is on pace for the worst December since 1931 as investors weigh the uncertainty of the health of the economy heading into 2019.
The best explanation for we have seen for what has caused the volatile moves in the market is from J.P. Morgan:
Evolving market structure has likely played a role in recent market movements. Broadly speaking, there are three primary types of investors in U.S. equity markets: active investors, passive investors and short-term traders who often use computer algorithms and momentum strategies to try to generate short-term profits. Over time, passive investors have grown and active investors have shrunk, and the importance of algorithmic trading has increased. Once momentum algorithms are triggered, there are not enough active investors, who trade on fundamentals, to stand in their way. This dynamic is amplified during periods of less liquidity and lighter volumes, such as the holidays. However, unless these pullbacks are validated by legitimate deterioration in economic conditions, they are unlikely to endure.
The yield on the U.S. 10-year Treasury bond fell to 2.72%.
We often discuss longevity when meeting to formulate financial plans and estimating how long our money has to last. Although he is an outlier, Richard Overton’s death at the age of 112 is a reminder that longevity is increasing and our time in retirement could be longer than we expect!