Comments on Recent Market Volatility

Elevated stock market volatility, as we have seen the past two months, brings gloomy headlines and may elicit fear in some investors. Since the beginning of October, the U.S. stock market (Russell 3000 Total Return Index) has gone from being up nearly 11% for the year to up just 2% as of December 6th. Most of this decline has happened during a few sizeable down days in the market, which can be alarming. It is an impossible task to identify and quantify the specific causes of any market decline, but there are a few leading candidates this time:

A Lookback at the Financial Crisis - Monetary Policy and Inflation

Nearly a decade ago, our Federal Reserve Board of Governors (the Fed) engaged in an aggressive monetary expansion operation, which we all knew as Quantitative Easing or “QE.”  To avert what many saw as the next Depression, the Fed bought trillions of dollars in U.S. Treasuries and mortgage-backed securities from December 2008 to October 2014; thereby lowering long-term interest rates, stabilizing markets, and encouraging lending.  The Fed printed vast amounts of money to make these purchases on the secondary market.  Within a couple years, the Fed had trillions of dollars in new assets on its balance sheet.  Many pundits were alarmed and warned that this would cause rampant inflation.  

Tempering Expectations: Potential Headwinds After an Eight Year Bull Market

After a prosperous 2016 for equity investors, global markets sustained their upward momentum in the first quarter of 2017 with most major indices ending higher.  Mounting evidence of stronger global economic growth, combined with hopes for tax reform and deregulation in the United States, lent confidence to investors worldwide.  Foreign markets led the way during the quarter, outperforming U.S. stocks.

Asset class returns for the quarter were as follows: