There is less than a quarter to go to close the books on 2019 and it looks like a pretty good year for the markets, especially large-caps, with the S&P 500 up about 18% year to date. Small-caps, as represented by the Russell 2000, have not fared as well but are still up about 12.5%. Meanwhile, microcaps have underperformed several fixed-income categories and are up just 6%.
Going back one year, however, tells a very different story. Since then, the S&P 500 is up less than 2%, the Russell 2000 is down 7.5% and the Russell Microcap is off nearly 15%. When someone tells me what a great year 2019 has been for the markets -- and I don't dispute that the year-to-date numbers look good -- I am compelled to bring up the fact that the past 12 months have not been great. The weak 12-month performance is courtesy of the brutal fourth quarter of 2018, which saw the S&P 500 drop 14% and which put both the Russell 2000 (down 20%), and Russell Microcap Index (down 22%) in bear market territory. Frame of reference is important when looking at market returns.
On another note, the volatility that was rampant over the summer in the S&P 500, as measured by trading days that the index closes up or down 1%, slowed considerably in September but has returned over the past week. From July 31 to Sept. 5 the S&P 500 experienced 14 volatile days (nine positive and five negative) out of 26 total trading days. The negatives outweighed the positives, however, and the Index was down about 1.2 % during that stretch.
However, after Sept. 5 there was a stretch of 17 trading sessions without a single volatile day. During that stretch the S&P 500 Index was all but flat. But it appears the start of the fourth quarter has brought with it a new run of volatility. Over the first four days of October the S&P 500 has already experienced three volatile days -- two negative and one positive (last Friday), and in case you are wondering, the index was down about 0.8% during that span.
I expect, right or wrong, that the rest of the fourth quarter will be volatile -- a veritable roller coaster ride. Political uncertainty, continuing trade wars and other issues should provide the fuel. With plenty of names in negative territory for the year at this point, tax-loss selling should be interesting and may impact the volatility somewhat.
Seat belts and dry powder are the order of the day as in buckle-up, and keep some cash on hand for potential opportunities.