Market Volatility In Perspective

It seems easy to forget what equity returns were like following the financial crisis in 2009. The significance of the contraction has certainly remained forefront in investors' minds. Just looking at the below chart reminds one of the damage done to portfolio values through this time period. At its worse, the 1-year return for the S&P 500 Index was negative 48.8% looking back from March 5, 2009. Almost exactly one year later, the 1-year return for the S&P 500 was 68.6% as of March 9, 2010. This type of volatility is not what investors like to experience or expect.

From The Blog of HORAN Capital Advisors

Notable in the above chart is the fact the returns for the 1-year rolling periods is trending lower as can be seen on the chart between the red and green resistance and support lines above. We do believe there is a high probability that equity returns, over the next three or so years, will be more muted in the mid to high single digit range.  With this potentially lower return environment, all else being equal, lower market volatility could persist as has been the case for the past few years and noted below.

From The Blog of HORAN Capital Advisors

A part of this lower return expectation is the fact we do believe a more neutral Fed Funds rate might be lower than the neutral level historically. If a neutral Fed Funds Rate is in the 2 - 3% range, it is not a stretch to expect equity returns to be in the high single digits from an equity risk premium perspective.