Description
The difference with these two bear markets was the
Scare Market Reactions to Headline Events
fact that they both reflected genuine issues with stock
S&P 500 Performance 9/30/2009 - 9/30/2014
market valuations. Rather than being the result of
220
over-reaction to unrelated non-financial headlines,
Ebola Concerns?
(To be determined)
the financial markets were the headline. The Internet
210
S&P 500 Index
Bubble reflected a widespread realization that market
Slow Down
200
5-Year Total Return
In China
valuations were over-inflated and a company’s ability
107.3%
190
to make money actually matters.
Fed Tapering
180
After the dust settled from the Internet Bubble
Uncertainty
(2000-2003), there was a five-year run-up lasting
170
from March 2003 through September 2007. Once
160
Congressional
the markets finally got back to even, the Financial
Fiscal Cliff
150
Crisis hit almost right away, starting from a peak
Eurozone and
set in October 2007.
This time the markets reacted 140 Debt Ceiling to a cascade of global financial issues that crossed 130 Greek Debt virtually all asset classes, including stocks, bonds, Crisis 120 real estate and commodities. The threat of financial turmoil was a real and immediate issue, not just 110 hyperbolic headline fear. 100 Year Since the Financial Crisis ended in early 2009, the 90 markets have rallied quite well, surpassing the old 2010 2011 2012 2013 2014 2007 peak by the end of 2011. By 2012, the recovery bull market had turned into a new bull market with # Days to 1-Year new all-time highs.
Despite finally breaking through Drawdown Period % Decline Breakeven Return the old highs set in 2007, there were still several From the From the After the Initial After the Initial Peak-to-Bottom Peak-to-Bottom 7.5% Decline 7.5% Decline scare markets during the post-Financial Crisis run. Some academics consider a correction to be 5%, 1/19/2010 - 2/8/2010 -8.03% 5 27.87% while others don’t consider it a correction until the 4/23/2010 - 6/8/2010 -12.76% 76 20.49% decline reaches 10%. So if we split the difference and analyze pullbacks of 7.5% or more over the past 6/18/2010 - 7/2/2010 -8.44% 7 33.46% five years, there are several notable scare market 7/22/2011 - 10/3/2011 -17.91% 66 34.50% corrections. Past performance is never an indication of future returns and the benefit of hindsight always 10/28/2011 - 11/23/2011 -9.41% 6 24.05% makes this exercise easier to address once news 4/27/2012 - 6/1/2012 -8.68% 18 31.27% events have become history.
But as the saying goes, Past performance is no indication of future returns. S&P 500 those who fail to learn from history are doomed to Total Return Index data from 9/30/2009 through 9/30/2014. Index repeat it. performance assumes reinvestment of dividends, but does not include The accompanying graph and table illustrate some fees.
Indexes are not available for direct investment. Data source for the of the scare markets that have occurred during the graph and table: FactSet, calculated by Arrow. past five years. The graph shows the ups and downs of the stock market (S&P 500) and identifies some specific news events that may have contributed to market scares.
The table shows the hypothetical results if an investment were made as soon as a 7.5% drawdown occurred and the resulting one-year return after that point. Since nobody can predict an exact bottom, drawdowns certainly can continue well beyond the initial 7.5% decline, as one would expect. So the table also shows how long it would have taken to get back to even if an investor had bought on the initial 7.5% dip, but still had to endure a further decline. Buying on the Dips: There is no way to know if a drawdown is going to be short-lived or not.
However, there is an obvious difference between a news-driven market scare and a fundamental bear market. Some would argue that brief market corrections are normal, and perhaps, even a sign of market health. Without corrections, bull markets can run out of control based on “irrational exuberance” and build to an over-inflated point—similar to the burst of the Internet Bubble of the late 1990s and the bear market that followed.
Periodic corrections give the market a chance to take a breath and gather itself, while also providing investors with an opportunity to buy on the dips. Past performance is no indication of future returns. All investment methodologies have risks, both general and productspecific, including the risk of loss of principal. Alternative investments, such as commodities and managed futures, may have additional risks not typically associated with stocks and bonds.
Always read the prospectus or offering memorandum before making any investment. The information provided is intended to be general in nature, not specific to any product or investor profile, and should not be construed as investment advice. This information is subject to change at anytime, based on market volatility and other conditions, and should not be considered as a recommendation of any specific security.
Arrow Funds are AD-041415 distributed by Archer Distributors, LLC (member FINRA). .
This time the markets reacted 140 Debt Ceiling to a cascade of global financial issues that crossed 130 Greek Debt virtually all asset classes, including stocks, bonds, Crisis 120 real estate and commodities. The threat of financial turmoil was a real and immediate issue, not just 110 hyperbolic headline fear. 100 Year Since the Financial Crisis ended in early 2009, the 90 markets have rallied quite well, surpassing the old 2010 2011 2012 2013 2014 2007 peak by the end of 2011. By 2012, the recovery bull market had turned into a new bull market with # Days to 1-Year new all-time highs.
Despite finally breaking through Drawdown Period % Decline Breakeven Return the old highs set in 2007, there were still several From the From the After the Initial After the Initial Peak-to-Bottom Peak-to-Bottom 7.5% Decline 7.5% Decline scare markets during the post-Financial Crisis run. Some academics consider a correction to be 5%, 1/19/2010 - 2/8/2010 -8.03% 5 27.87% while others don’t consider it a correction until the 4/23/2010 - 6/8/2010 -12.76% 76 20.49% decline reaches 10%. So if we split the difference and analyze pullbacks of 7.5% or more over the past 6/18/2010 - 7/2/2010 -8.44% 7 33.46% five years, there are several notable scare market 7/22/2011 - 10/3/2011 -17.91% 66 34.50% corrections. Past performance is never an indication of future returns and the benefit of hindsight always 10/28/2011 - 11/23/2011 -9.41% 6 24.05% makes this exercise easier to address once news 4/27/2012 - 6/1/2012 -8.68% 18 31.27% events have become history.
But as the saying goes, Past performance is no indication of future returns. S&P 500 those who fail to learn from history are doomed to Total Return Index data from 9/30/2009 through 9/30/2014. Index repeat it. performance assumes reinvestment of dividends, but does not include The accompanying graph and table illustrate some fees.
Indexes are not available for direct investment. Data source for the of the scare markets that have occurred during the graph and table: FactSet, calculated by Arrow. past five years. The graph shows the ups and downs of the stock market (S&P 500) and identifies some specific news events that may have contributed to market scares.
The table shows the hypothetical results if an investment were made as soon as a 7.5% drawdown occurred and the resulting one-year return after that point. Since nobody can predict an exact bottom, drawdowns certainly can continue well beyond the initial 7.5% decline, as one would expect. So the table also shows how long it would have taken to get back to even if an investor had bought on the initial 7.5% dip, but still had to endure a further decline. Buying on the Dips: There is no way to know if a drawdown is going to be short-lived or not.
However, there is an obvious difference between a news-driven market scare and a fundamental bear market. Some would argue that brief market corrections are normal, and perhaps, even a sign of market health. Without corrections, bull markets can run out of control based on “irrational exuberance” and build to an over-inflated point—similar to the burst of the Internet Bubble of the late 1990s and the bear market that followed.
Periodic corrections give the market a chance to take a breath and gather itself, while also providing investors with an opportunity to buy on the dips. Past performance is no indication of future returns. All investment methodologies have risks, both general and productspecific, including the risk of loss of principal. Alternative investments, such as commodities and managed futures, may have additional risks not typically associated with stocks and bonds.
Always read the prospectus or offering memorandum before making any investment. The information provided is intended to be general in nature, not specific to any product or investor profile, and should not be construed as investment advice. This information is subject to change at anytime, based on market volatility and other conditions, and should not be considered as a recommendation of any specific security.
Arrow Funds are AD-041415 distributed by Archer Distributors, LLC (member FINRA). .
