Putting Context Around Recent Stock Market Volatility

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®
Amusement Park at night in December

Photo Credit: Ethan Hu, Unsplash

Financial markets are experiencing more significant moves up and down as investors navigate a long list of events, including Federal Reserve interest rate hikes, heightened geopolitical risk, and 40-year high inflation readings. Stock market volatility is rising this year after a relatively calm 2021. This month’s chart provides historical context around stock market volatility and discusses how to think about your portfolio during periods of increased volatility.

S&P 500 Index Daily Price Returns (1970s-Present)

S&P 500 Index Daily Price Returns (1970s-Present)

The chart above shows the S&P 500 Index’s daily price return since 1970 and overlays the top 30 and bottom 30 days. There are two important takeaways. First, the best and worst trading days historically occur in clusters. Second, timing the market is almost impossible due to the close proximity of good and bad days. For example, earlier this month, after the latest inflation data showed that price pressures might be easing, the S&P 500 had its 15th largest daily return since 1970. The +5.5% S&P 500 return on November 10th followed volatile trading during September and October and demonstrates how market volatility occurs in groups.

What can you do to improve your chances of achieving your long-term goals?

As always, our team recommends staying balanced and diversified. Different asset classes react to market conditions in different ways. Diversification spreads your investments around, so your exposure to, and the potential impact from, any one type of asset is limited. More importantly, focus on the long-term rather than day-to-day price swings. History indicates lengthening your time horizon increases the odds in your favor. Should you have any concerns about market volatility, please do not hesitate to reach out to our team.

Our Insights

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Fed Cuts Rates By Another -0.25%, But Lowers Expectations for 2025
Fed Cuts Rates By Another -0.25%, But Lowers Expectations for 2025

This week, the Federal Open Market Committee (FOMC) concluded its final monetary policy meeting of 2024 by lowering the federal funds rate by 0.25 percentage points to a range of 4.25%-4.50%. This was the third consecutive rate cut, reducing the benchmark short-term rate by a full percentage point over the year. While the rate cut was widely anticipated, the central bank adopted a more hawkish outlook than Wall Street had expected, scaling back its 2025 rate cut projections from four to two. This cautious approach likely reflects the sticky inflation readings this fall, which showed a modest uptick in price growth.

S&P 500 Sets More Than 50 New Highs in 2024
S&P 500 Sets More Than 50 New Highs in 2024

The past two years have been remarkable for investors, with the S&P 500 posting back-to-back gains of over +20%. The chart below looks at 2024’s price movement and uses yellow shading to mark the days when it closed at an all-time high. Since late January 2024, the S&P 500 has set over 50 new highs this year.

Labor and Inflation Data Give the Fed the Green Light to Cut Rates
Labor and Inflation Data Give the Fed the Green Light to Cut Rates

This week, the Bureau of Labor Statistics released the latest inflation data, following recent updates on consumer and producer prices. While November's consumer price index (CPI) and producer price index (PPI) largely met expectations, both showed persistent upward pressure, disappointing Wall Street. We anticipate the Federal Reserve will respond by lowering short-term interest rates at its December 17-18 meeting, likely by 25 basis points to a range of 4.25%-4.50%.

Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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