Weathering the storm: Staying invested through market volatility

December 14, 2018 James Virgo


You've no doubt noticed that volatility has returned to more normal levels as global markets swing due to the latest headlines. Each week it seems there is fresh news from policy makers that causes markets to move.

This week is no exception. There are a lot of headlines to choose from.

  • The arrest of Huawei's Chief Financial Officer, Meng Wanzhou sparked fears of further worsening China-U.S. trade tensions. Canada has also been dragged into the situation for its role in helping the U.S. detain Wanzhou.
  • Brexit uncertainties persist. Prime Minister Theresa May appears to be holding onto power by a thread as she attempts to get a negotiated deal approved by her Parliament.
  • The U.S. government bond yield curve has been flattening out and even began to invert last week. Historically, inversions of the yield curve have preceded many U.S. recessions.

Headlines like these get a lot of attention and make it easy to forget the long-term, big picture. At times like this, we need to look past the short-term fluctuations and remember that your MD portfolio is built to achieve much longer-term investment goals.

Volatility continues, but economic fundamentals remain supportive

Overall our view continues to be that markets are simply correcting (albeit a long correction) after the prolonged period of relative calm and low volatility we enjoyed in 2016 and 2017. We will continue to analyze economic fundamentals for any breakdowns, but at this moment we do not foresee a recession occurring in 2019.

Although it can be difficult to remain calm when markets swing 800 points in one day, it is far better for investors to stay the course and stick to their long-term plans, rather than react emotionally. It does not pay to react to market corrections.

Mutual fund manager Peter Lynch probably put it best when he said that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." He was also famously reported to have said “the key to making money in stocks is not to get scared out of them." These are words to take to heart during these volatile times.

In other words, stick to the plan

While we have started to see a general slowdown in global economic growth in recent months, we continue to think today's volatility is being driven more by short term factors (the headlines) than by markets trying to efficiently discount for lower growth going forward.

My advice to investors is this: Remember your financial plan and the long-term goals you've set out to achieve. Volatility is normal. Stay invested in your diversified portfolio and don't let your emotions get the best of you.

Market corrections always feel like the end of a bull market because the media tends to sensationalize negative price action and focus on recession predictions. The benefit of having professional money managers on your side is that we pay attention to the headlines for you and we filter noise from the relevant facts.

We continuously examine your portfolios and allocation decisions and we adjust things accordingly when we see risks and opportunities. We are willing and able to adjust regularly to new information as it comes out, based on objective, fundamental data - not on emotion.

Speaking of headlines...

While there is a lot of uncertainty about how markets are going to finish the year, there are also a few headlines to come which could prove to bolster market performance.

Notably, markets could get an early present from the U.S. Federal Reserve when it announces its next interest rate decision. It's looking likely that rates are going up again in the U.S. next week, but attention will placed on the Fed's tone. Last month, the Fed's tone was decidedly more dovish than it has been in the past.

If the softer stance persists, this would likely lessen fears of a U.S. recession in 2019. U.S. unemployment is at a 50-year low and inflation seems to be in check, indicating the Fed may tap the brakes on rate increases next year. It will be interesting to hear what the Fed Chairman has to say when the next interest rate announcement comes out next week.

Not our first rodeo

Market volatility is normal. In the face of volatility, staying disciplined and sticking to your long-term plans is the best course of action.

If you have any questions about how market volatility is affecting your portfolio, speak with your MD Advisor. He or she will be happy to provide you with the information that you need.


About the Author

James Virgo, CFA, CFP, MBA, is Vice President and National Lead with MD Private Investment Counsel at MD Financial Management. He oversees the practice of investment counselling and delivery of investment advice across MD PIC.

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