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Casting Off IV: Market Update


Investment Insights

By David Hone, CFA

When the stock market starts falling especially like it has in recent days, many people reach their pain threshold given sudden short term losses. While this fear may seem appropriate, it turns out that less than one in five corrections actually turn into a bear market.

First, let’s define a market correction and a bear market. A correction is defined as a decline of at least 10% but not more than 20%. Historically, corrections have been a 13% decline and averaged 54 days. A decline of over 20% is a bear market and the 14 bear markets in the U.S. over the last 70 years have lasted for an average of only one year.

Since 1900, there’s been a stock market correction every year on average. To put it into context, one should experience the same amount of market corrections in one’s life as birthdays. Considering that corrections happen fairly frequently and are not the magnitude of bear markets, it can be easier to have less angst about hitting the eject button with your long-term investment plan.

So corrections should be considered normal and natural – until they actually take place! What makes this recent market decline more painful to many is that before last Friday, the S&P 500 had gone 564 calendar days since its last decline of 5%, longer than any period since 1945.

The U.S. economy is now normalizing which means the country’s economic output is moving towards its natural potential. This is good news as it is accompanied by stronger economic data, solid corporate earnings and healthy employment levels. However, accelerating economic growth usually spurs higher inflation. Since we have lived in a world of abnormally low inflation and interest rates, this transition will likely be accompanied by more stock market volatility.

As Warren Buffet said, “The stock market is a device for transferring money from the impatient to the patient.” Patience with a plan is important as the economy and markets transition towards normalization.  Despite the current bout of market volatility, LCV Advisors continues to believe that investment success is largely driven by what we can control and patiently adhering to a simple and clear investment plan.

As always, I look forward to your thoughts and questions.



David Hone, CFA

President, Investment Advisor, LCV Advisors LLC
O: 847.574.8645 | C: 917.655.0792
| dhone@lcvadvisors.com | www.lcvadvisors.com

LCV Advisors LLC is an Investment Adviser registered with the State of Illinois. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at (847) 574-8645 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from LCV Advisors with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.