Weekly Market Commentary 01-15-2018

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Weekly Market Commentary 01-15-2018

15 January 2018

As has been noted by one and all, 2017 was a year of amazingly low volatility and completely absent of pullbacks of any significance. But why? Standard & Poors (S&P) has documented what could be the hidden answer: extremely low correlations among stocks. In more usual times, stocks tend to move together, like the birds of a flock in flight. But in 2017, correlation was at record lows, meaning that fewer and fewer stocks were moving together, and more and more were zigging while others were zagging. This has the net effect of dampening overall volatility, as the opposing moves offset one another in the aggregate. “Record low correlations accompanied the relative lack of market swings, and indeed may be seen as a causal factor,” S&P wrote in its research report. “Markedly different reactions to the year’s major events created stronger diversification effects, dampening volatility in the benchmarks.”