Transition

This is a market in transition from one regime (low volatility) to another (high volatility, almost daily).

It’s not just trade policies or Trump tweets or interest rates or Facebook concerns whatever thing we’re all talking about from one day to the next. Market regime changes have many parents.

Ryan Vlastelica at MarketWatch tells us that the number of days with stock market swings greater than 1% in 2018 has already doubled what we saw during all of last year…

Even though the U.S. stock market is still in its first quarter, with about a week left to go until 2018 is 25% over, it has already seen far more volatility than occurred over all of last year. In fact, the first three months of the year have seen more than twice as many sharp gyrations—in both directions—as was seen during 2017, which was an atypicallyquiet year for equities.

Thus far this year, the Dow Jones Industrial Average has had 11 sessions when it rose by at least 1%, including Monday, in addition to another 13 where it fell by at least that much, counting Tuesday. While swings of that magnitude are hardly uncommon on Wall Street, they represent a profound change from the trading environment of 2017, when there were only 10 such sessions — in both directions — seen over the course of the year.

In other words, the number of sessions with a 1% move so far in 2018 are more than double 2017’s tally, and it isn’t even April.

Josh here – just because volatility has picked up and the market has obviously changed character, that doesn’t mean investors ought to change their own character. Adopting new tactics is better left to professional traders. For investors, the presence of unexpected drawdowns and market dislocations popping up means new opportunities to harvest the imprudence and forced errors of others.

I got a sneak peak at the presentation Barry and Michael put together for our first quarter client-only conference call and the slides are incredible. Not every market environment will be a nirvana of placid daily action and almost weekly new highs. Nor should transitions to new environments be necessarily terrifying.

Context, patience, acceptance and stoicism will be key, especially as others grow increasingly myopic, impulsive, indignant and frantic in their words and deeds.

 

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