After The Drop: Market Returns For The past Two Weeks

Since the US equities market dropped by 3.5% two weeks ago, tomorrow, there has been much punditry on the implications of the sudden decline.

One wonders how many investors headed for the sidelines, concerned over the sudden volatility and confusion among various market commentators on its imminent direction.

If you are curious, here are the daily returns for the S&P500 Index for the last two weeks, beginning with that Tuesday's decline.

-3.47%
0.56
-0.26
-1.14
-0.94
1.55
-0.25
0.71
0.07

The total return, excluding the first Tuesday's drop, ending with this past Friday, is +.30%.

For my own portfolio, here is the daily return series for the same period, again, beginning with the Tuesday loss two weeks ago.

-4.97
1.67
-0.75
-1.93
-1.18
2.63
-0.11
1.43
0.45

Our portfolio's return, following the initial Tuesday loss, is +2.21%.

I believe this reinforces an old adage I learned long ago, when I worked and consulted at Oliver, Wyman & Co. I don't recall the exact statistics, but went something like this: by being out of the market for only the best 10 days over a 10 year period, an investor could miss nearly half of the period's return.

In this case, the market's performance has been net positive for the period after the precipitous decline of that Tuesday. Given the S&P's negative return at this point, the +.30% return is a fairly large component of the year-to-date return.

For our portfolio, the aftermath of the sharp drop has been even better. We regained our year-to-date margin of outperformance over the S&P500, adding 2.2% to our return.

I wonder how many investors, even veteran institutional fund managers, missed out on returns by leaving assets unallocated to equities over the past two weeks? Trying to time the market by dumping shares and running to the sidelines means often missing positive returns in the market that cannot be made up. For most managers, missing only +.30% return in the S&P could well be the margin for underpeforming the index this year.

This recent period reinforces my use of a proprietary market signal for long/short allocation. By avoiding the tendency to bolt out of a market which has experienced a few bad days, my portfolio strategy remained in place and reaped a significant gain.