Market Volatility Shows Itself

September 24, 2021

By Tim Courtney, Chief Investment Officer

From September 2 through 21, the S&P 500 fell about 4%. For the month through yesterday, the S&P is down a little less than 2%. This kind of market behavior over the course of a month is unremarkable. However, because of the speed of the market’s rise over the last year and a half with a lack of much downside, investors have seemed more nervous during this pullback and several analysts have called for a near-term stock market correction.1

We have market corrections about once every 18 months on average, so it would not be surprising if we had one now. The fact that we haven’t had one is probably more surprising given the market surge since March 23, 2020. The S&P 500 has doubled from its trough last year,2 which it’s done before within 18 months but never without corrections within the run higher. We nearly had a correction last September but the market fell just shy of a full 10% pullback.

That said, corrections do serve a purpose and are healthy for markets. Like buildings constructed with a foundation and temporary scaffolding as the building grows higher, markets grow higher on a fundamental foundation and supports. The higher the market moves, the market scaffolding that has built up around it can become less stable.

A correction can be seen as taking down scaffolding and replacing it with a stronger, more solid frame for long-term investors. During this market rally we have seen speculation in certain areas, especially in meme stocks and SPACs. Much of this has been driven by record amounts of account margin and leverage being used. Note the large increase in those who have left their jobs and become full-time day traders.3 Corrections are useful in clearing out some of the excesses and speculation from markets. 

History has shown that it is very difficult to predict corrections, and those credited with correct predictions rarely do so more than once in a row.4 One thing we can do, however, is rebalance portfolios. Times in which markets have run and investors have become overweighted to stocks compared to their planned allocation (77% actual vs. 70% target, for example), we can take some of the gains and rebalance them into other assets. This ties our actions back to the planning and overall strategy investors decided upon when the portfolio was started.

J.P. Morgan supposedly once said, “In bear markets, stocks return to their rightful owners.”5 This is a reference to those investors who, like us, are longer-term investors and may be willing to put additional capital to work as prices are dropping. Corrections are not fun, but they are necessary and whenever they may occur, we should expect stocks and the profits they generate to return to their rightful owners.

If you have any questions about this or rebalancing your portfolio, please reach out to your Exencial advisor.


1. CNBC (9/20/21) — U.S. stocks bounce slightly as it tries to claw back from Monday’s rout
2. CNBC (8/16/21) — S&P 500 doubles from its pandemic bottom, marking the fastest bull market rally since WWII
3. CNBC (09/21/2020) – Many are chasing the stock market by day trading in the pandemic.  It could end badly.
4. Forbes (10/11/18) — Can we predict when a market correction is due?
5. The Orange County Register (6/10/06) — How a plunge returns stocks to ‘rightful owners’

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this book. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971

subscribe for updates on new resources