Greetings from Huston-Fox Financial Advisory Services. We hope your spring season is moving forward in spite of Mother Nature’s best attempts to keep us in hibernation. The U.S. stock market started off 2018 moving higher only to retreat lower in February and March.
Stock and bond markets seem captivated with what has become a hyper-sensitivity to economic news. Headlines have caused investors to wrestle with import tariffs announced by President Trump’s administration and jitters surrounding the Federal Reserve’s ability to normalize monetary policy without impacting economic growth.
In spite of the stock market volatility, the Dow Jones Industrial Average was only down a little over 2% for the quarter and bond prices fell about 1.5%. Non-US stock markets fell, on average, 5% for the quarter. What was the biggest loser of the quarter? Bitcoin, the cryptocurrency, fell by 45%. Client portfolios have no exposure to speculative investments like Bitcoin.
From the end of January’s stock market peak to the end of March, U.S. stock markets fell 11% or into correction territory. As we start the second quarter of 2018, markets are trending lower as high flying stocks like Amazon, Facebook, Alphabet (parent company of Google), Netflix, and Tesla are faltering a bit for numerous reasons. 2017 was a year of historic non-volatility with stock markets higher over all twelve months. We wrote in the 2017 year-end commentary that a return to volatility in 2018 could be expected.
Corrections are normal stock market events. Very little economic data suggests a true “bear market” or recession, however, we remain vigilant and will rebalance when appropriate to take advantage of market swings.
Stock markets move higher and lower in chunks with little long-term ability to predict when these moves will occur. In 2017, the stock market moved 1% higher or lower on a daily basis ten times. So far in 2018, we have enjoyed twenty-one such moves. How about 2% daily stock market moves? In 2017, there were none but 2018 has endured six so far: four to the downside and two to the upside.
Stock markets will rebound, and we will rebalance to take advantage of these periods of time. Bond markets operate differently. Longer duration bond funds are down nearly 10% so far this year while short duration bond funds may actually be higher. Your portfolio holds shorter duration bond funds, so as interest rates rise, your portfolio will benefit quickly with little risk.
Stock market fundamentals remain positive. Corporate earnings are solid, job growth is rising, unemployment is low, and the Federal Reserve monetary policy is geared to help offset any whiffs of inflation that might appear.
We are here to answer your questions, address concerns, and welcome the opportunity to discuss any other financial issues in person or on the phone. Our business continues to grow because of your support and we sincerely appreciate your trust, your business, and your referrals. Thank you.
Ryan A. Fox, MBA
Sean C. Huston, ChFC