From the TPG Investment Committee:
The fourth quarter has been ugly for stocks around the world. After a wonderful third quarter, U.S. stocks (as represented by the S&P 500) have declined around 15% from the high in October. As unsettling as that may sound, the magnitude of this selloff isn’t out of the ordinary for typical intra-year declines:
The chart above shows how the size of any given drop in a year (red dot) doesn’t often predict how the full year will turn out (gray bar). While a drop near the end of the year certainly leaves little time to recover, there are years shown above where intra-year drops of 20-30% still result in a positive return for the full year. The takeaway is that swings in the stock market – even big ones – are a normal part of a healthy market.
While the exact cause of this selloff can be debated (and constantly is on TV), one of our jobs is to decipher the signal from the noise. This could be another correction like we saw in January/February that ended up recovering and heading higher or the start of a new season in stocks. Regardless, we build client portfolios to endure downswings, not avoid them, and your particular time horizon and financial plan matters more than the swings of the stock market over a few weeks. As always, we are monitoring our indicators and will make portfolio changes if necessary.
We encourage your comments and questions at any time.
Michael W. Gallagher, CFA
Director of Investments