Daily Capital

Weekly Market Digest: The Importance of Remaining Disciplined

This week could be described as volatile. Markets started off the week in the red and continued to trend that way on trade uncertainty until Friday when positive economic data was released with regards to unemployment and wage growth.

Weekly Returns

S&P 500: 3146 (+0.16%)
FTSE All-World ex-US (VEU): (+0.90%)
US 10 Year Treasury Yield: 1.68 (+0.06)
Gold: $460.44 (-0.24%)
EUR/USD: 1.106 (+0.36%)

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Weekly Events

  • Monday – The S&P 500 posted its biggest one-day loss since October 8th while the Dow Jones Industrial average fell over 250 points amid concerns about US Manufacturing data and negative sentiment about progress towards a permanent trade deal with China.
  • Tuesday – President Trump indicates he is willing to wait until after the election to complete a trade deal with China.
  • Wednesday – U.S. Service Sector slows at a faster rate than expected for November.
  • Thursday – The U.S. Trade deficit is reported at its lowest level in over a year.
  • Friday – U.S. unemployment falls to a 50-year low.

Our Take

Despite increased volatility and roughly flat or negative performance for four of the five days this week, markets generally finished the week higher than they started. While one week is not even close to a “long-term outlook”, this week highlights the value of remaining disciplined in the face of market volatility and negative headlines.

It is not possible to predict the direction or magnitude of market moves, especially in the short-term. The ride is not always going to be smooth; or fun, but typically over the long-term, if you remain in a well-diversified strategy you’ll likely do better than if you react to every headline, speculation or piece of news that is published.

Let’s take a quick look at some of the relevant empirical economic information that was released this week:

On Monday, data was released that showed that U.S. Manufacturing activity contracted last month. It was also reported that non-manufacturing sectors slowed more than expected in November, however the headline fails to point out that there was still growth in activity, just not as much as expected. On Friday, the labor department reported that the unemployment rate is as low as it has been since 1969 and that wages have increased by 3.1% vs. one year prior.

Any one of these headlines in a vacuum could be spun in a way that might incite fear and panic for what’s to come economically, or that could inspire optimism about the future. The truth likely lies somewhere in between.
Our advice is to maintain discipline and try not to pay too much attention to fluctuations in the market or the daily headlines.

We appreciate the challenge of ignoring short-term volatility and headlines, so below is a quick, real life example of how hard it is to predict the outcome of markets, even if you have some knowledge of the future:

Year 1: 8 of 12 months will have positive performance in the S&P 500

Year 2: 7 of 12 Months will have negative performance in the S&P 500

Which of these two years would you prefer to be invested in the S&P 500?

Year 1 = 2018, S&P 500 Total Return was -4.38%

Year 2 = 2015, S&P 500 Total Return was +1.19%

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Matthew Vibert
Matthew Vibert, CFA is a Financial Advisor for Personal Capital. Matthew has several years of experience working with institutional and high net worth investors. Prior to Personal Capital, Matthew served on teams at JP Morgan, Fieldpoint Private Bank and Trust, and Janus Henderson Investors.
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