Don’t Burn Yourself With This ETF Before the New Year

United States indexes have entered a period of violent volatility in the final week of December. On December 24, investors were treated to the worst Christmas Eve performance in the history of the stock market. Stocks soared back on Boxing Day and December 27. The Dow Jones Industrial Average experienced its largest spike in history as it gained 1,086 points on December 26.

Investors should not let this uptick fool them in the final days of 2018. Those who are tempted to buy low on index-trackers like the Vanguard S&P 500 ETF (NYSE:VOO) should wait for a broader pullback before jumping in. The Vanguard S&P 500 ETF has dropped 6.9% in 2018 so far.

U.S. stocks are fighting to ward off a bear market that would snap the second-longest bull market in history. The S&P 500 enjoyed a 5% gain on December 26, something the index had not achieved since 2009.

In previous history, eight of its previous gains of 5% or more have occurred during bear markets. Three occurred during the pullback that stretched from 2000-2003. Recent gains appear to reinforce the volatile environment rather than hint at the emergence of a broader rebound.

U.S. growth is set to slow in 2019 and 2020. The benefits of U.S. tax reform are beginning to fade, and corporate earnings will be under renewed pressure in 2019. The global trade war is also threatening growth internationally.

The last several months have taught investors that the “buy-the-dip” mantra should be regarded with some degree of skepticism. Investors should not be afraid to exercise restraint heading into 2019.