Aspinalls remains refreshingly predictable; market ‘turbulence’ is only short-term noise

You may have seen on the news that stock markets have had an unusually large downward move in January, and we thought it would be worthwhile providing some, hopefully predictable, thoughts. As we said in the summer, we see short-term volatility in stock markets as being perfectly normal and, indeed, as precisely the reason why stock markets tend to produce good returns over long periods of time. But it may be helpful to look at January’s moves in their historical context.

Since the start of the 2016, prices in the UK are down 5.9% whilst those in the United States are down 8.2% [1]. The United States is the focus of this article because it is easy to obtain data on that market, but the broad conclusions apply equally to the UK. Since January 1871, there have been 45 months in which US share prices have fallen by 8.2% or more [2]. It is a relatively unusual thing to happen, in other words, but one would expect it to occur in roughly one year out of three.

Another way of looking at the decline in share prices is to ask how far they have fallen from their previous peak. US share prices reached a new peak in May 2015 and since then have fallen 12% [3]. By way of comparison, prices have been 12% or more below their previous peak more than half of the time [4] since January 1871; however, the returns from owning shares do not just come from price appreciation but also from dividends, which generally continue to be paid even if prices fall. In addition, prices have tended to increase over the long run. The following chart shows the total return from an investment of £100 in the US market since 1871, taking account of both price increases and dividends (n.b. the total return is so large that it is necessary to use a logarithmic scale, where each vertical division is ten times the one below it).


US Stock Market, Total Return [5]

We would not recommend that anyone should own shares if they need to make a good return this month, or this year. Stock markets are notoriously volatile. The argument for owning shares is that they usually provide good returns over long periods of time, say ten or twenty years, and they are generally appropriate for clients whose financial plans stretch relatively far into the future. For such clients, the kind of decline that we have seen recently in share prices should be seen not as worrying, but rather as normal short-term noise.


John Butters CFA, Chartered MCSI

Head of Investment



[1] Source: Financial Express Analytics, based on the FTSE 100 and S&P 500 indices, 31 December 2015 to 25 January 2016.
[2] Source: Professor Robert Shiller, Aspinalls’ calculations.
[3] Source: Financial Express Analytics.
[4] Source: Professor Robert Shiller, Aspinalls’ calculations. Prices have been 12% or more below their previous peak 55% of the time.
[5] Source: Professor Robert Shiller, Aspinalls’ calculations.