Why the Volatility in the Stock Market?

Warren Buffet has a saying, “predicting rain doesn’t count, building an ark does.” In the investing world we call this the Noah Rule. Since the 35% drop in the S&P 500 index in February/March of this year, our attitude towards the market fundamentals has been very skeptical. At the time of this writing, the U.S. has 8.4% unemployment, and second quarter GDP (a standard measurement of economic growth) of -32%. To put it simply, advisers were shocked to see the markets recover over 50% while the economic numbers are screaming that the economy was not doing so well. This is why, as a company, we took action to “build an ark” for our client’s investments. Between various funds and investment models, we strived to reduce risk and volatility as much as possible. We asked ourselves, “if we had to go through another 35% drop in the markets again, how would we want to be invested?” 2020 has been an interesting year for all of us, but with the remaining 4 months, we have concerns to watch for as we begin to wrap up the year. From 9/2/20 to 9/8/20 the S&P 500 index fell 6%. Below are some reasons why we are currently experiencing the uptick in market volatility.

1. Wake me up when September ends: Based on historical data, the month of September generally is the worst performing month of the year.

2. Correction: The stock market normally precedes the economy. If the markets are too high, generally there is some kind of drop in the markets (a correction) to make it more in sync with the economy.3. The Election: We are getting closer and closer to the election day, which often makes the markets more volatile in general due to the uncertainty of the outcome.4. Deflation: You can think of deflation as everyone wanting more money on hand. Since Congress has been having issues passing another stimulus bill and more people are needing money to pay for things like rent, this could lead to investors cashing out to get more cash on hand.