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Sunday, February 17 , 2019, 6:51 am | Fair 49º


Mission Wealth’s Week in Review: A Volatile Market Spells Losses for Hasty Investors

Feel like you have whiplash after watching the markets over the last week?

It’s important to recognize that volatility is a normal part of investing, and history has shown that those who stay the course benefit over the long-term. 

Most importantly investors should have a financial plan and portfolio built to meet their long-term financial goals and objectives. If this is the case, investors shouldn't be concerned with short-term market fluctuations.  

Here is Mission Wealth Management’s day-by-day assessment of the turbulent past few days.

Monday, Aug. 24

Dow -3.57%, S&P 500 -3.94%, Nasdaq -3.82%

The market opened Monday's trading session dramatically lower, with the S&P 500 falling -7 percent, before retracing much of those losses through the morning, then easing through the afternoon before finishing the day down -3.9 percent.  

We believe a heavy amount of program trading and many emotionally driven investors were large factors behind the weak open.

Bargain-hunting investors then appeared to take advantage of the weak open, with the market grinding its way back toward where it closed last Friday, Aug. 21.  

In fact, the S&P 500 was down just -1 percent at the midpoint of the day's trading.

The afternoon session saw some renewed selling pressure, as stocks moved down -4.5 percent before bouncing somewhat during the last 30 minutes to finish the day with the S&P 500 at -3.9 percent.

Tuesday, Aug. 25

Dow -1.29%, S&P 500 -1.35%, Nasdaq -0.44%

In another big day on Wall Street, stocks initially rebounded significantly at the open, but subsequently trimmed those gains before experiencing an afternoon sell-off, with the S&P 500 eventually finishing the day down -1.3 percent.  

Stocks were up +2.9 percent earlier in the day after China took steps to alleviate investor concerns.

Chinese policy makers cut interest rates and lowered the required cash reserve banks must set aside. Both measures were intended to help address the slowing economy and stem recent stock market volatility.  

Wednesday, Aug. 26

Dow +3.95%, S&P 500 +3.90%, Nasdaq +4.24%

After a volatile session, domestic equity markets finished the day with an impressive gain of +4 percent (the Dow Jones rose 619 points, and the S&P 500 rose 73 points). 

The session marked the largest percentage gain in domestic stocks since 2011 and the third-largest absolute point gain ever for the Dow Jones.

A significant volume of buy orders were observed in the final hours of today's trading (which is the opposite of what occurred on Tuesday), potentially indicating a higher level of short covering.

Thursday, Aug. 27

Dow +2.27%, S&P 500 +2.43%, Nasdaq +2.45%,

In another positive day, the S&P 500 rallied +2.4 percent, with the majority of gains experienced in the final hour of trading. 

Stocks initially bounced positively on the open, then ground higher through the first half of the session before experiencing a short-lived sell-off. 

In fact, the S&P 500 briefly slipped into negative territory before closing the day out strongly in the final hour of trading. 

The very positive revision to Q2 GDP growth, a bounce in Chinese stocks attributed to government intervention and oversold conditions were all cited as key catalysts behind the market’s positive move.

Friday, Aug. 28

Dow -0.07%, S&P 500 +0.06%, Nasdaq +0.32%,

The market was essentially flat on this day, but the S&P 500 ended the week up +1 percent. 

Oil proved even more volatile, rallying +18 percent from the lows on Monday, Aug. 24, to finish the week with a gain of +6.5 percent. 

This marks the first positive week for oil in nearly two months.

In Summary

In our view, the primary reason for the uptick in volatility during the course of the week was behavioral.

Investor psychology hasn't been helped by the media either. The media has a tendency to fixate on the downside: "the sky is falling" sells the news.

This can lead to poor decision-making when it comes to investments. Unfortunately, we have seen this episode play out time and again.

Many investors sell-out when volatility increases, only to miss out on the subsequent rebound, essentially locking in those losses. This rash decision-making is a primary reason why the "average investor" underperforms most asset classes over extended periods of time.

Whether the markets are surging upward or retreating in volatile times (as we have seen over the past week), we recommend patience and a focus on long-term objectives and financial goals. 

— Kieran Osborne, CFA, is a portfolio manager at Mission Wealth Management.

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