Special Memo: Continued US 2018 Stock Price Declines

Victor Levinson Comments

As stock prices continue their sharp October declines, we are writing to follow up on our October 10-11, 2018 Special Memo, which also discussed these declines. This memo uses the S&P 500 as a proxy for the US stock market, which closed today, October 24, at 2,656. We highlight a few price points for that index since Donald Trump’s surprise 2016 election.

Day After Election, November 2016, Base Level: 2,163;
Year End 2017: 2,674; +511; +23.6%
February 2018 Recent Lows: 2,581; +418; +19.3%
Summer 2018 Recent Highs: 2,930; +767; +35.5%
October 24 2018 Current: 2,656; +493; +22.8%

These figures indicate that even with the October declines so far, the index remains substantially positive for the almost two years since the election; still higher than the February 2018 lows; and less than one percent below year-end 2017. Note also that interest rates (ten-year US Treasuries), an oft-cited reason for these declines, are actually lower now than when the serious declines started on October.

Some other observations, expressed regularly in our Monthly Comments:

  • There are no guarantees stocks will consistently move higher. Instead, history tells us there can be periods of significant decline, for all sorts of reasons, and the real questions are how long the time period, and the amounts of the declines. History also suggests stocks provide better long-term results when compared to other liquid investments
  • Trying to time when to be in and out of stocks cannot be done consistently over time.
  • Allocations to bonds and cash equivalents provides a defense against stock price volatility. For example: A 50% allocation to stocks means whatever the percentage decline, your portfolio should be down only half that amount.

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