Quarterly Update
By Chris Cassidy, CEO
I started at Trust Company of Vermont as a full-time employee in 2006. At the time, corporate earnings were strong, the economy was doing well, and the housing market was booming. S&P 500 returns were positive in both 2006 and 2007, and everything was going along smoothly. Then 2008 happened.
2008 marked the second worst year of the last one hundred years for the S&P 500 with the index falling almost 40% in one year. Only in 1931, during the Great Depression, did the stock market perform worse than 2008.
As stressful and difficult as 2008 was, the S&P 500 recorded double-digit gains in 2009, 2010, 2012, 2013 and 2014. In fact, a common theme with equity markets over the past one hundred years is that periods of the biggest gains generally follow periods of the biggest losses.
Recently, Dreman Value Management analyzed the major geopolitical events the world has faced since World War II, such as the Cuban Missile Crisis, the Persian Gulf War and the 1998 Russian Bond Default, and their impact on equity markets. It concluded that while markets struggle initially in the face of geopolitical turmoil, on average the Dow Jones Industrial Average was over 16% higher twelve months later.
That theme holds true in recent times as well. A recent Barron’s article noted that the average S&P 500 gain for the 12 months following a close in correction territory is 9.3% dating back to 1998. We saw this phenomenon play out in 2020 when the S&P lost one third of its value in a matter of weeks, only to post a double-digit gain for the calendar year.
Geopolitical conflicts and volatile financial markets are never easy to experience. The nightly images of the humanitarian crisis occurring right now in the Ukraine are heart breaking and sad. Our thoughts and prayers go out to all the people that are displaced and suffering because of this unfortunate conflict.
As previously mentioned, geopolitical conflicts almost always result in market volatility and downward pressure on equity prices. We have certainly seen that in 2022 with the S&P 500 and Dow Jones Industrial Average reaching correction territory. Thankfully, we have a highly experienced group of portfolio managers that are accustomed to market volatility.
Trust Company of Vermont was fortunate to hire Chris Lafayette as a Portfolio Manager in our Burlington Office at the beginning of this year. Chris resides in South Burlington with his wife, Rachel, and their three children. Like me, Chris managed assets during the 2008 Financial Crisis and is no stranger to volatile price swings. His article provides some insights into investing in turbulent financial markets.