Update on the Markets:
| Index | 1st Quarter 2018 | Year-to-Date |
| S & P 500 (Large US Stocks) | (0.76%) | (0.76%) |
| Russell 2000 (Small US Stocks) | (0.08%) | (0.08%) |
| FTSE All World ex US (International Stocks) | (1.13%) | (1.13%) |
| Barclays US Aggregate (Bonds) | (1.46%) | (1.46%) |
April 1, 2018
A Rocky Start
The stock market started the year very strong with the S & P 500 index + 5.6% at the end of January. Investors were optimistic about higher corporate earnings, the stimulative effects of the new tax cuts and synchronized global growth. But then on February 1st stocks hit a wall and severe volatility set in. The S & P 500 has risen or fallen 2% seven times this year, compared with zero in all of 2017. What changed? The global economy was strong, but investors were concerned about the direction of interest rates and the possibility of a trade war. All investors know that the days of extremely low-interest rates are over. The Fed is trying to “normalize” interest rates by instituting periodic hikes. All bets were on three hikes this year. But a few higher-than-expected inflation readings and strong monthly unemployment reports had some investors thinking maybe four hikes are more likely. Three hikes-Four hikes-Four hikes- Three – it seems to change every day. Does it really make that much of a difference? The bigger picture is that interest rates are still very low by historical standards and the Fed has repeatedly assured investors that its hikes will be slow and measured. As for a trade war, it looks like a lot of the bluster was more about posturing before real trade negotiations start. Our most important trading partners were eventually exempted from the steel and aluminum tariffs, and our tussle with China will eventually lead to constructive talks on a mutually acceptable outcome. The stock market is hostage to politics until earnings start coming out in early April. This all leads me to my next point:
Ignore the Noise
Over a year into Donald Trump’s presidency has proven countless times the prudence of ignoring all of the chatter, nail-biting, and shock and horror you often see in the mainstream media (and social media). Watching TV can be very detrimental to your financial health – and probably your mental health too. Volatility is a normal aspect of the stock market – last year was the aberration. Benjamin Graham said: “In the short run, the stock market is a voting machine but in the long run, it’s a weighing machine.” Compliments of fellow Certified Financial Planner™ and author Carl Richards, the graph shown is something to contemplate.
What To Do Now
There are a lot of positives out there: low-interest rates, an accommodative Fed, strong corporate earnings, tax cuts, consumer spending, a strong global economy. There are negatives too: a tightening labor market, pockets of stronger inflation, expensive stock and bond markets, political uncertainties and geopolitical threats. On balance, stocks remain attractive and should outperform bonds. Maintain your neutral asset allocation. As always, please let me know if you have any questions or comments.
Sincerely,
Henry Gorecki, CFP®
