Long-Awaited Correction Arrives During Third Quarter
Thursday, October 15, 2015
- The first market correction in four years highlighted a forgettable quarter for investors, as the S&P 500 dropped 6.4% to post its worst return in the last sixteen quarters. Losses were even more pronounced in other equity indices, as the Russell 2000 Index and MSCI EAFE International Index both posted double-digit declines. Emerging market stocks slumped 18%.
- Corrections occur more often than many realize. In fact, since 1928, we have averaged more than one correction every year. Obviously, nobody enjoys periods of losing money, but 10% corrections are invariably a natural part of long-term investing.
- Thanks to this pullback, investors are once again presented with the atypical scenario in which there is more income to be gained from stocks than bonds, at least if comparing the yield of the S&P 500 Index to the yield on the 10-Year Treasury.
- We continue to believe that once the Fed does finally raise rates that further rate hikes will be at a subdued pace. Furthermore, a 25 basis point increase may actually build investor confidence as opposed to being viewed as a negative event.
- Acknowledging the short-term volatility, we recommend that long-term investors practice patience. During this downturn, we have taken the opportunity to harvest tax losses, invest excess cash and, where appropriate, rebalance portfolios for clients.
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