The S&P 500 rallied sharply today up (+1.5%), closing at 2053, essentially the price level where it started 2015. The S&P’s average daily price level in 2015 is 2060.
The fact that the S&P has made no net progress in 2015 masks a considerable increase in the stock market’s day-to-day volatility in recent weeks.
While the S&P 500 is back where it started the year, the past several months have seen significant volatility: a 12% decline from mid-July to late September, followed by a sharp recovery in October (+8%), and most recently, declines in seven of the past nine trading days.
We expect continued stock price volatility through the end of 2015 and into 2016, as investors sort out a variety of risk factors, including the timing of the Fed raising interest rates, a slowdown in corporate earnings emanating from weak energy prices and a persistently strong dollar, continued weak global economic conditions, and a new outbreak of terrorism.
Against this backdrop, our focus remains decidedly long-term, and company-specific. Our companies generally are showing solid operating and financial performance, and valuations remain attractive over a several year time horizon. Our approach will continue to be to use short-term stock price volatility opportunistically, to add to our holdings in great companies at attractive valuation levels.
While the stock market has made little price progress so far this year (despite covering a lot of ground to go nowhere), we believe most of our companies have both increased their underlying business value, and improved their competitive positioning, which should allow for good returns for shareholders on balance in coming years.