Hang Tight - The Future Still Looks Bright

Michael E. Schroer, CFA

Managing Partner & Chief Investment Officer | Renaissance Investment Management

From a historical context, the sharp decline in stock prices in the fourth quarter suggests that better returns lie ahead.

The table below shows every quarter since 1926 where the S&P 500 declined by 13% or more (it declined 15.3% in the fourth quarter), and what happed to the market over the following 1 year, 3 year and 5 year periods.  On average, the market has done quite well over subsequent periods after a sharp quarterly decline.

The S&P 500 posted a positive return in 73% of the 1-year periods, 82% of the 3-year periods, and 91% of the 5-year periods after market declines of 13% or more.  Moreover, many of the declines shown in the table occurred during the Great Depression period of 1929-1939, a highly unusual period in U.S. economic history, and one significantly different from today.  If one looks at only the 75+ year period from 1940 on, the one-year return of the market following a 13%+ quarterly decline has been positive in 11 of 12 periods (91%).  Returns over the following three-year and five-year periods have been positive in every case.

History can be an imperfect guide to the future, and market volatility may persist in the short term.  However, we believe that market fundamentals remain intact and investors with a long-term horizon should continue to benefit from investment in stocks.  We favor high quality stocks offering strong growth potential while selling at reasonable valuations, particularly in the Technology, Consumer Discretionary and Industrial sectors.

Data as of 12/31/2018
Source: Ibbotson

The preceding Market Update reflects the thoughts of Renaissance as of Jaunuary 1, 2019. This information has been provided by Renaissance Investment Management. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision. The views and opinions expressed are those of the portfolio manager at the time of publication and are subject to change. There is no guarantee that these views will come to pass. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. 


If Renaissance or benchmark performance is shown, it represents historically achieved results, and is no guarantee of future performance. Future investments may be made under materially different economic conditions, in different securities and using different investment strategies and these differences may have a significant effect on the results portrayed. Each of these material market or economic conditions may or may not be repeated. Therefore, there may be sharp differences between the benchmark or Renaissance performance shown and the actual performance results achieved by any particular client. Benchmark results are shown for comparison purposes only. The benchmark presented represents unmanaged portfolios whose characteristics differ from the composite portfolios; however, they tend to represent the investment environment existing during the time periods shown. The benchmark cannot be invested in directly. The returns of the benchmark do not include any transaction costs, management fees or other costs. The holdings of the client portfolios in our composites may differ significantly from the securities that comprise the benchmark shown. The benchmark has been selected to represent what Renaissance believes is an appropriate benchmark with which to compare the composite performance.

The value of an investment may fall as well as rise. Please note that different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio. Investor principal is not guaranteed and investors may not receive the full amount of their investment at the time of sale if asset values have fallen. No assurance can be given that an investor will not lose invested capital. Consultants supplied with these performance results are advised to use this data in accordance with SEC guidelines. The actual performance achieved by a client portfolio may be affected by a variety of factors, including the initial balance of the account, the timing and amount of any additions to or withdrawals from the portfolio, changes made to the account to reflect the specific investment needs or preferences of the client, durations and timing of participation as a RIM client, and a client portfolio’s risk tolerance, investment objectives, and investment time horizon. All investments carry a certain degree of risk, including the loss of principal and are not guaranteed by the U.S. government.

S&P Data

S&P is the source and owner of the trademarks, service marks and copyrights related to the S&P Indexes. S&P® is a trademark of S&P. This presentation may contain proprietary S&P data and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Renaissance Investment Management. S&P is not responsible for the formatting or configuration of this material or for any inaccuracy in Renaissance’s presentation thereof. This data is to be used for the recipient’s internal use only.

Referenced Indexes
(Indices are unmanaged and are not available for direct investment.)

S&P 500 Index—The S&P 500 Stock Index is a market capitalization weighted index and consists of 500 stocks chosen for market size, liquidity and industry group representation.

GICS® Sector Information

MSCI and S&P do not make any express or implied warranties or representations and shall have no liability whatsoever with respect to any GICS data contained herein.


Michael E. Schroer, CFA

Managing Partner & Chief Investment Officer | Renaissance Investment Management

PUBLISHED: January 16, 2019

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