Aaron Schaefer

Oct 14 2014

Volatility in the Markets


Market Volatility Update

The lack of volatility and the run-up of the S&P 500 over the last year and a half has created a false sense of security regarding normal market behavior. Despite seeing the second 5% correction in the S&P 500 this year (we expect three in a typical year), the index for the year has delivered a total return of 3% through October 13.

There are many factors that have led to the most recent sell-off, including:

  • Ebola outbreak in Africa
  • ISIS
  • Unrest in Syria
  • Slowdown in China
  • Japan slipping into a recession
  • The E.U. about to start a Quantitative Easing program of their own

Quarterly corporate earnings announcements, which begin this week, may ease some of the volatility in the markets; however, if early earnings reports do not come in as expected, there may be further market declines. Relative to the rest of the globe, the U.S. economy remains strong.

The average stock market decline going back to January 1, 2010 was -8.33%, while the average recovery during the period has been +14.34%. As the chart below reminds us, you have to expect volatile periods in the stock market, but that should not dissuade you from investing money for the long-term.

Volatility in the Markets

Volatility in the Markets

It is normal to have market downturn periods of 5% and 10%, but they are generally short-term in nature. In our view, these present good entry points for building positions. We expect stocks to be a good source of long-term returns and one of the best ways for investors to keep ahead of inflation (the biggest risk to investors in our opinion). That said, it appears we have entered into a time where volatility is returning to normal levels and investors should not be surprised to see bigger price moves up or down in the future.

Some trust products and IRA contributions/balances are not a deposit, not FDIC insured by any federal government agency, not guaranteed by the bank and may go down in value.
Aaron Schaefer

About Aaron Schaefer

Aaron Schaefer is Vice President, Trust Investment Officer at Hills Bank’s North Liberty location on Forevergreen Road. He has been at Hills Bank since 2004 and manages the investment area of the Trust and Wealth Management division. Aaron can be reached at aaron_schaefer@hillsbank.com.


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