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Monthly Market Insights

Following two straight months of unseasonably strong gains, stocks gave it all back in October.

Among U.S. indexes, the Dow Jones Industrial Average lost the least (-4.9%), followed by the S&P 500 (-6.9%), the tech-heavy Nasdaq 100 (-8.6%) and the small-cap Russell 2000 (-11.0%).

All major indexes reached correction status, a loss of -10%, from the latest peak to the October lows, though a late surge pulled the S&P 500 and DJIA back into the black for the year.

Foreign markets were worse. The MSCI EAFE Index lost -8.1%, and Emerging Markets Index fell -8.8%. The EAFE is now down -9.4% for the year and emerging markets have fallen -16.3%. Investors who owned foreign funds hoping that diversification and better relative valuations might insulate them from down markets have been sorely disappointed.

Nowhere to hide

There was nowhere to hide in October as diversified and sector funds alike posted losses. The media focused mainly on weakness in technology, but biotech, resources, and homebuilders lost at least as much as tech. The biggest losers were energy and Mexico (both down -18%).

History reminds us that things may get worse before they get better. This is the second longest expansion in history without a decline of 20% or more, so you should be prepared for the possibility that the current pullback may not be over.

How to move forward

There is no way to know now if this decline will be a routine correction or the start of a more protracted bear market. But we do know that declines, and even bear markets, are normal, and having a clear plan can help us invest through them.

As long-term investors, we also know that stock rallies and selloffs don’t last forever. Diversification can help smooth the bumps, rebalancing helps trim gains and buy dips, and our Upgrading investment approach helps us stay aligned with leading funds.

Many investors appreciate working with an experienced advisor, especially in volatile markets. If you’d like to talk about becoming a client, click here, and let’s set up a good time to talk.