When the calendar turned the page to 2018, did you think you would be boarding a rollercoaster ride in 2018? That might be what the financial markets have felt like thus far for those following it. We shot off like a rocket ship the first three weeks of the year, sold off into mid-February, then rallied back in March to get back to where the year pretty much started.
When considering this volatility, you want to think about the big picture before making any rash decisions. It also helps to talk with us! This ride might feel unusual, but it is typical of the way markets work. In 2017, Wall Street saw very little pronounced volatility. The absolute daily percentage change in the S&P 500 was approximately 3%, the smallest seen since 1964. Each month was positive. Rarely is the market climate this favorable.1 In 2018 it has been a very different story, the first quarter saw two dozen trading days with a 1% swing in the S&P 500 versus a total of eight in 2017 for the entire year. We have seen a technical correction and some big days to the downside.2 The ups and downs might be unsettling, but this is normal. It also illustrates why market timing can be so difficult.
Most accounts went up, down, and back up again to finish the quarter pretty much where they started. Slightly positive, flat, or slightly negative for most in the first quarter. Log into our website portal to see your specific returns (https://areniteadvisory.com/). All in all, not too bad considering the talking heads on the TV might have you thinking about jumping out of windows…never a good idea.
Is the bear market coming? Should you get out of equities and pull the emergency brake on this rollercoaster? Sadly, we can’t predict the future, but we can suggest several good reasons to stay put. The jobless rate is 4.1%. The economy’s yearly growth rate is at an encouraging 2.6% and inflation remains in check at 2.2%.3,4 FactSet, a respect investment analytics company, believes S&P 500 firms may report their best annual growth since 2010, forecasting an 18% increase for fiscal 2018.5 The economy is continuing to hum along, yet is not overheating.
There’s the appearance of more “headline” risk presenting itself in 2018. These events tend to be short-lived yet can move the market significantly for a period of time. There have been concerns about the Fed needing to increase the pace of their rate hikes, proposed trade tariffs volleying across the Atlantic and Pacific, rising tension in the Middle East, concerns on Russian meddling and the Mueller investigation, and misappropriation of Facebook information. Scared yet? Does your stomach dropout like the dips on a rollercoaster with each passing headline?
Despite the headlines, most companies keep making money and attempting their best for investors. This is important to remember. You are invested in the stocks and bonds of companies trying to earn money for their stakeholders, NOT the headlines crossing your screen or newspaper. You should also keep in mind that this is a mid-term election year, so there can also be a fair amount of politics behind some of the headlines. Of highest concern would be an all-out global trade war, but one might want to familiarize themselves with President Trump’s negotiation style. He brings a firm hand to his tweets and press to rally his political base but often will compromise behind the scenes. Headlines come and go, some above could just as easily be pulled from 1970’s minus the social media side. These too shall pass.
The events of this year remind us that the market faces constant challenges. Some come from left field and some gradually emerge. These setbacks take time to overcome, but they are often overcome in the near-term. Since World-War II, the average bear market has lasted just 22 months.6 While recent bear markets have been longer, some can be as short as a few months.
Even with all the turbulence, the market is still considerably higher than what it was a year ago. While the volatility has been pronounced and we have seen more the first half of April, it also represents the very way capital markets work. It was 2017 and the steady upward direction which was an anomaly. If there was no risk, you would also not see the return rewards for accepting those risks. This is a normal part of investing. Arenite positions your portfolio as a longer-term investor, not a short-term trader.
Thank you for your continued confidence and business. We appreciate the opportunity to partner with you in your financial affairs. Please do not hesitate to contact us with any questions, comments, or concerns.
Daniel D. Sands
CFP® | Principal @ Arenite Advisory
17822 E. 17th Street, Suite 212, Tustin, CA 92780
Phone: 949-522-6560 | Toll-Free: 866-330-1443 | Fax: 949-771-9817
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Securities offered through Gĕneos Wealth Management, Inc., Member FINRA/SIPC
Advisory services offered through Arenite Advisory®, Registered Investment Advisor
1 – marketwatch.com/story/the-last-time-stocks-were-this-quiet-was-the-year-the-beatles-went-on-ed-sullivan-2017-12-14
2 – marketwatch.com/story/the-dow-and-sp-500-have-already-doubled-the-number-of-1-moves-seen-in-all-of-2017-2018-03-26
3 – tradingeconomics.com/united-states/indicators
4 – money.cnn.com/interactive/pf/taxes/tax-cuts-by-state/index.html
5 – cnbc.com/2018/03/30/stocks-should-see-a-spring-boost-in-april-says-lpls-ryan-detrick.html
6 – cnbc.com/2018/02/08/the-stock-market-is-officially-in-a-correction–heres-what-usually-happens-next.html