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I came in the office today (02/05/2018) expecting to have time to write my February Month-In-Review. I finished my last meeting, opened a Word Document and before I finished my first sentence (which I erased and started over) the Dow Jones Industrial Average went from down 900 – to down 1,600 – and back to down 900. So this now became the Intra-Month Update. My full February review will be postponed to focus on the recent market events.
A lot of technical trading happening; which means investors are not changing course, but trader algorithms are kicking in. You know those commercials when people are walking down the street and something distracts them across the road? Then they walk right into the street poll. It’s funny to watch, if you aren’t the person who is bleeding from the nose. Don’t look at this trading noise; keep your eyes on what drives the market over a longer period than 4 days: fundamentals. Do this and you stand a better chance at not walking away with a bloody nose and a sunken spirit.
We have wanted a correction for a while now. It is always good to be reminded that the market can be unpredictable and can move short-term in a different direction than its long-term path. Getting all of the volatility within one week would not have been our recipe, but if that’s what the market has to offer, we’ll take it. Markets have historically shown that up-markets very typically have mid-year corrections of this, and greater magnitude. Let me give you some examples to ease your mind.
1998 – S&P 500 dropped top to bottom -19%, ended the year up 27%1
1999 – S&P 500 dropped top to bottom -12%, ended the year up 20%1
2003 – S&P 500 dropped top to bottom -14%, ended the year up 26%1
2010 – S&P 500 dropped top to bottom -16%, ended the year up 13%1
2012 – S&P 500 dropped top to bottom -10%, ended the year up 13%1
2013 – S&P 500 dropped top to bottom -6%, ended the year up 30%1
There’s more, but the point can be made.
We want to encourage all investors to keep their eyes on what matters: fundamentals. Currently, S&P 500 earnings are almost 18% higher than they were last year2. Today we received another strong ISM Nonmanufacturing Index reading at 59.1%3. Unemployment came out last week unchanged at 4.1%4. One of the things that we can respect is increasing wages at too fast a rate. Year over year increases came out last week at 2.5%; which is looking strong5. Corporations are able to handle this. Profits are not turning sideways, and good ‘ol GDP (the economy) could use more wages to consumers, since they make up close to 70% of the overall growth in the economy6.
We knew volatility was going to come back, and we look forward to the opportunities it presents. We do not sway our overall investment themes based on technical selloffs. That being said, we do understand this can be an emotionally unsettling time. Please feel free to reach out to us if you would like more understanding of your personal portfolios as well as a more in depth understanding of where we see the market moving this year.
If you missed it, you can view our annual outlook webinar on our website at:
As always, we appreciate your trust and confidence,
LPL Financial Advisor
Vice President, AGH Wealth Management
1 Morningstar Direct™
2 JP Morgan Guide to the Markets 1 QTR 2018, page 12
6 JP Morgan Guide to the Markets 1 QTR 2018, page 18
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. All indicies are unmanaged and may not be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.