Market volatility of the past few weeks/months has created anxiety for investors who can’t help but wonder what’s going to happen next. The economic backdrop, while moderating a bit, is not exhibiting recessionary indications. Nonetheless, trade, the Fed and other geopolitical issues domestic and abroad have created an environment of concern for investors.

What this all adds up to is uncertainty. This is something I have written about in the past.

We reviewed six major historical market declines in the level of the S&P 500 (at least 10% drawdowns, measured monthly) that were not directly associated with a recession. What we observed was that from the month the S&P 500 entered a 10% drawdown, 12 months later the market was up an average of 20%. Furthermore, in all these incidents, returns were positive in each of these occurrences. The average drawdown (measured monthly) in these examples was -17%.

S&P 500 breached chart

Source: Bloomberg, Astor

While the economy has moderated, the important point is that we believe there are not indications of stalling. While Q2 and Q3 growth were strong, it was temporarily above the recent average rate of around 2.5%. In our opinion, current economic data points continue to support a solid economic picture. Here’s what we know from economic data:

Employment – It is our view that the US labor market is strong with companies finding it harder to find workers.

US Employment Situation chart

Source: Bloomberg, Astor

GDP – GDP has moderated back to recent trend levels. While not accelerating, we have seen this level of growth supportive for equities. The four-quarter average growth rate is above the five-year trend growth rate with expectations for next year at approximately the same level.

US GDP - QoQ Annualized chart

Source: Bloomberg, Astor

Markets have been challenged and uncertainty exists amongst many investors. At the same time, the economy is in decent shape. This doesn’t mean a correction isn’t happening. To say this bull market was getting long in the tooth should be a surprise to no one (for one thing, we’ve been saying that for a while). Add to that the fact that, as we regularly tell investors, the market could make a 10 percent move at any given time and for no apparent reason.

While the economic data gives an assessment of an economy that continues to expand, the time may come when active managers may get defensive. Bear markets in the broad indices may become more aggressive because of the recent trend toward widespread passive holdings.

We at Astor are keeping a very close watch on stock market movements and economic data in real time—as we always do. But we’re even more vigilant these days and stand ready to make a methodical, expedient move, IF and when that becomes necessary.


All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Analysis and research are provided for informational purposes only, not for trading or investing purposes. All opinions expressed are as of the date of publication and subject to change. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information.