Market Sell-Off Update: Why Diversification Matters

Before the recent sell-off, the S&P 500 was more overvalued than the beginning of 2000 (when looking at price-to-sales ratio). This market sell-off is also different than that of 2000. Here we have seen all parts of the market sell-off initially. In 2000 this was not the case. There were places in the market that held up and a general sell-off did not occur until later (2002).

Today we are starting to see a divergence between markets. One example of divergence is in emerging markets. Although emerging markets are down since September 30, 2018, they have significantly outperformed US stocks in this sell-off. Also having uncorrelated assets in the portfolio, like gold, provide a much needed diversification benefit.