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Stocks Are Down! Or Up! Or Maybe Both???

 Which of these statements is true for the period January 1 to February 16, 2018?

    1. Stock returns were bad, down 4.7% from the previous high.

    2. Stock returns were good, up 2.5% in less than seven weeks.

Well, both statements are true. A $100,000 investment into a S&P 500 Index Fund on January 1 would have:

  • Declined 4.7% from its previous high,
  • Increased 6% from its Year to Date low and
  • Increased 2.5% for the period January 1 to February 16.
Stock market volatility has been high this year. Stocks declined 10% for the first time since 2016. That caused near panic in many commentators. Then stocks recovered, still lower than January 26 but higher than January 1.
My opinion: Volatility should be expected. A 10% decline from a previous high is not unusual. Historically, 10% declines averaged once a year. And a 2.5% increase in less than seven weeks is good news.
Does this tell us anything about prospects for the rest of the year? Doubtful. Short-term movements in the stock market are usually not very meaningful and certainly not predictive. For instance, compare this year’s S&P 500 Index return with 2016.
S&P 500 Index Fund investments declined by a much greater amount during the early part of 2016. Yet 2016 was a good year, with a total increase of 12%.
Historically, well diversified and managed stock portfolios were good long-term investments.  Short-term fluctuations and even extended declines are expected. What happens in the first seven weeks or seven months should not matter.  
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice.  For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.
Keep in mind that:
  • Past performance is no guarantee of future performance;
  • Investments involve the risk of loss of principal and earnings;
  • ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and they should not assume that these generalizations or information apply to them.
  • Investments mentioned may not be suitable for all investors.

Arthur Stein Financial, LLC ("ASF") is a registered investment advisor ("RIA"), located in the State of Maryland. ASF provides investment advisory and related services for clients nationally. ASF will maintain all applicable registration and licenses as required by the various states in which ASF conducts business, as applicable. ASF renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or pursuant to an applicable state exemption or exclusion.

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