The S&P 500 seemed destined for bear territory (a fall of at least 20%) at the end of last year. It was down 17% when the US government shut down on Saturday December 22nd. On Monday, the 24th, a frenzied half-day of trading left the market down more than 19% from its high. The bull run was all but over. Bears were breaking out the honey and vying for gloomiest forecast on TV. After all, there was a government shutdown, continued China trade disputes, and confidence in the Federal Reserve was shaken.
Just as the bear was about to move in, the door was slammed in its face. The market ignored pundit opinions and rallied hard. The S&P 500 was up over 10% during the shutdown, popping up over 15% from the December low through the end of January.
The near-bear of 2018 has prompted predictions of increased volatility for the market and outperformance for “quality” companies. In many ways this would just be a return to normal. 2017’s low volatility was extremely abnormal. 2018 was actually a more normal year in terms of market movements. For investors whose portfolios don’t depend on timing or predictions, this increase in volatility provided an opportunity for rebalancing and tax-loss harvesting. The quick whipsaw between December and January is a reminder of just how difficult timing the market really is.
“Don’t look for the needle in the haystack. Just buy the haystack!”
– Jack Bogle, Founder of The Vanguard Group
John C. “Jack” Bogle, founder of The Vanguard Group, passed away on January 16th. It is difficult to overstate the impact this man has had on the investment world. Index investing and the subsequent race to the bottom in fees has done more to keep money in investors’ pockets than anything else in recent memory.