The turn of the calendar to September is often bittersweet, as it means the summer is in our rear view; however, for investors to see this particular August come to an end, is likely welcome. The volatility in the markets picked up quite a bit in this last month of summer, and likely caused some investor anxiety, but how does it compare to the volatility in previous summers? In the end, it’s been relatively normal with a better than median summer return … even though it didn’t feel that way.
Let’s review volatility in the S&P 500 Index (SPX) this past summer and how it relates to prior years. We examined Dorsey Wright’s research regarding daily returns for SPX going back to 1987 where researchers counted the number of times the index had a gain or loss in August exceeding 1%. It turns out that SPX had a daily movement greater than 1% on only one day in July – on the 31st. However, as shown in the chart below, volatility picked up significantly in August and there were 11 days in which the SPX moved more than 1%. Definitely a noticeable difference. This was the most volatile August we have seen since 2011, and it brought the total number of +/- 1% days during the entire summer of 2019 to 14. As seen in the second chart below, it’s been four years since we experienced the number of “volatile days” that we did this summer, the two previous times were in 2012 and 2015. The total number of summer days that saw heightened volatility is directly in line with the historical median of 14 days, meaning that this summer volatility as a whole was relatively normal. However, the +6.34% return posted by the SPX from 5/31/2019 through 8/30/2019 is significantly higher than the historical median return for these summer months, which is only +2.42%.  this past summer and how it relates to prior years. We examined Dorsey Wright's research regarding daily returns for SPX going back to 1987 and counted the number of times the index had a gain or loss exceeding 1%. It turns out that SPX had a daily movement greater than 1% on only one day in July – the 31st. However, volatility picked up significantly in August. There were 11 days in which the SPX moved more than 1%. This was the most volatile August we have seen since 2011, and it brought the total number of +/- 1% days during the summer of 2019 to 14. While the increase in August volatility is abnormal, the total number of summer days that exhibited heightened volatility is actually directly in line with the historical median of 14 days, meaning that the summer volatility as a whole was relatively normal. The 6.34% return posted by the SPX from 5/31/2019 through 8/30/2019 is also significantly higher than the median return for these summer months, which is 2.42%. http://www.whiteoakfinancialmanagement.com/wp-content/uploads/2019/09/Summer-2019-page-001.jpg Based on the above data, the summer of 2019 was the most volatile summer since 2014, and prior to that, 2011. In other words, it's been five years since we experienced the number of "volatile days" that we did this summer. September and October are not historically the best months for the market, but we enter these months with a longer-term picture of US Equities being ranked number one in DALI and the long term trend chart of the major indices being positive. As a matter of fact, all of the back and forth action over the past couple of months have led to consolidation on the chart of the S&P 500 Index, setting up potential breakout to the upside with the potential for a move to 2950. A note about rollovers vs. direct tranfers: Three bad things can happen when you do a rollover instead of a direct transfer: 1. You could miss the 60-day rollover deadline 2. You could incur 20% mandatory withholding (on distributions from company plans) 3. You could break the once-per-year IRA rollover rule The solution is simply to do only direct, trustee-to-trustee transfers, also known as direct rollovers, in which the funds go directly from one plan to another without anyone touching the money in between, as opposed to indirect rollovers, where a check is made out personally to the IRA owner or employee. If the check is made out to a person, that person can cash that check — this is constructive receipt — and the rollover attempt can trigger all three tax traps above. If for some reason a direct rollover is requested and the company plan or IRA custodian insists on issuing a check, then have that check made payable to the receiving institution and not to you personally. Checks made out to the receiving institution cannot be cashed, and they qualify as direct rollovers. We'd be happy to discuss this with you further. Here's a link to an article on this subject: https://www.investmentnews.com/article/20190905/BLOG09/190909975/rollovers-are-all-bad-use-only-direct-transfers#.XXJK81iZxT4.email ){kind=spacer}
September and October are not historically the best months for the market, but we enter these months with a continuing longer-term picture of US Equities still being ranked number one in strength in a comparison of six asset classes, and the long term trend chart of the major indices is positive. As a matter of fact, all of the back and forth action over the past couple of months have led to consolidation in the S&P 500 Index, setting up a breakout to the upside with a move to 2950 which has now occurred. It’s a good sign for potentially higher equity markets. Money continues to flow into the US stock and bond markets from around the world. Why? Because we have a great economy and good corporate profits and our bonds are paying positive, albeit low, interest rates while the rest of the developed market countries are paying negative returns on their bonds. The USA remains the best place for invested dollars, and until something is better than here, that’s where we’ll be.
From IRA guru Ed Slott: Re: IRA and company retirement plan Indirect Rollover vs. Direct Rollover (also known as Direct Transfer or Trustee to Trustee Transfer)
Three bad things can happen when you do an Indirect Rollover instead of a Direct Rollover:
1. You could miss the 60-day rollover deadline
2. You could incur 20% mandatory withholding (on distributions from company retirement plans)
3. You could break the once-per-year IRA rollover rule
The solution is simply to do only Direct Rollovers, in which the funds go directly from one plan to another plan or IRA without anyone touching the money in between, as opposed to Indirect Rollovers, where a check is made out personally to the IRA owner or company employee.
If the check is made out to a person, that person can cash that check — this is called Constructive Receipt — and this kind of Indirect Rollover attempt can trigger all three tax traps above.
If an employee requests a Direct Rollover and the company plan Administrator or IRA custodian insists on issuing a check, then have that check made payable to the receiving institution and not to you personally. Checks made out to the receiving institution cannot be cashed by the employee, do not require a mandatory 20% withholding, and they qualify as Direct Rollovers.
We’d be happy to discuss this with you further if you have questions or are considering moving retirement money.
Here’s a link to an article on this subject: Article
As always, we welcome your calls and visits and wish you our best.
