By Chief Investment Officer Tom Kelly, CFA.
In 2021, the global stock market (as measured by the MSCI ACWI Index) continued to reach new high after new high, but this year is off to a different start.[1][2] After the slow and steady rise in 2021, the rather opposite slow and steady fall occurred throughout the first quarter of 2022.[1] Though some recovery happened in the last three weeks, market headlines continue to point out all the things to worry about such as war, inflation, and recession.[1] Challenging times may be ahead, especially with the continued conflict between Russia and Ukraine.
While not diminishing those challenges and the people affected, it may be an opportune time to take a step back for a wider perspective. When looked at as a whole, the stock market can sometimes seem tame and uninteresting during times of lesser volatility, and all fraught with despair during periods of higher volatility and drawdowns. However, the drawdown of 13% so far this year for the global stock market is not uncommon at all, and we often see intra-year drawdowns well into the double digits even when the end-of-year returns end up positive.[2] Over the last 20 years in the global stock market, intra-year drawdowns averaged 16%, yet calendar year returns were positive in 15 out of 20 of those years.[2] A gentle reminder to stay the course.
Source: Morningstar. See Important Disclosure Information.[2]
It is interesting to note that the “market” as a whole often masks the ups and downs of its individual stock components. Within the MSCI All Country World Index, 94% of the nearly 3,000 companies experienced a drawdown of at least -10% during 2021, and about half drew down 25% or more.[2] This in a year when there was lower volatility, limited geopolitical events, and the global stock market as a whole up 19%![2] This suggests the value of broad diversification.
When evaluating the underlying returns, there is often plenty to worry about and temptation to tinker. We believe that trying to time when to get in and out, or what to buy and sell, represents little more than gambling. MarketPlus Investing on the other hand is a disciplined process, centered around research and evidence, with diversification at the core.
Important Disclosure Information & Sources:
[1] “SJS Weekly Market Update”. SJS Investment Services, 2021-2022, sjsinvest.com.
[2] Morningstar. The global stock market is represented by the MSCI ACWI Index, which is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI Index consists of 47 country indices comprising 23 developed and 24 emerging market country indices.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Statements contained in this article that are not statements of historical fact are intended to be and are forward looking statements. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Indices are not available for direct investment. Index performance does not reflect the expenses associated with management of an actual portfolio. Index performance is measured in US dollars. The index performance figures assume the reinvestment of all income, including dividends and capital gains. The performance of the indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness.
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