Keep calm and carry on in the face of market volatility
Today’s volatility viewed against historical backdropOver the last 35 calendar years (1980-2014), the Russell 1000® Index has finished the calendar year in positive territory 29 out of 36 times – or in 81% of the years. As mentioned earlier, the Russell 1000® has experienced a market correction of 10% or greater in over half of those years ? 21 to be exact. Yet in 66% of the years with a notable market correction, the Russell 1000® still finished the year positive with the average return during a correction year of 8%. Note: All year-to-date data is through 8/24/15. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. So, market corrections are fairly common, and so are positive upswings. The U.S. equity market is resilient and has historically bounced back quickly from a correction. The chart below demonstrates these points as well, showing the Russell 1000® Index return and largest drawdown for each calendar year. This chart helps support the point that staying invested through volatile periods has been a more rewarding strategy than selling during a correction year over the last 35 years. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
What’s driving current market volatility?In the latest Q3 update of our Global Market Outlook dated June 25, 2015, Russell’s strategy team said that the advent of Fed interest rate tightening would likely cause some market volatility, and that has proven prescient. However, China’s currency situation has added more fuel to that fire. As we have seen in recent weeks, the market’s mood swings have been fast and furious – with intraday swings of 6% or more one way or the other. Fears of an economic slowdown in China may be offset by a dovish statement by a Fed governor. Or it can go the other way with a hawkish comment. So don’t be surprised if we see continued volatility in the coming weeks. In regard to China, our chief market strategist Erik Ristuben believes it faces tremendous structural challenges as its growth slows. He believes China is trying to limit the short-term pain the economy currently faces by delivering more monetary easing. He believes China can manage its current issues, which is one reason why we believe the current softness in its economy does not pose a serious threat to the global economy in the short-term. As always, Russell’s team of strategists will continue to monitor events closely and share our thoughts with you. For now, though, all eyes are on the Fed and their two-day meeting in mid-September. In the meantime, stay calm.
The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.