February 6, 2018
Dear Friends and Clients:
The last time we experienced a pullback over 5% in the market was in 2015. From November 1, 2015 to February 1, 2016 the market pull backed 7%. Since February 1, 2016 the S&P 500 is up over 40% through today’s close. In fact the S&P started 2018 up 5.6% in the month of January (14 record highs in the month). If the market can advance over 5% in one month it can certainly give back 5% or more in a single month. (Source Yahoo Finance).
So let’s put this in perspective, in the first 26 days of trading of 2018 the S&P has had a return of basically 0%. But for those invested for the last two years depending upon specific allocation are up 40%. Please repeat this sequence forever!
No one knows how long or deep any market pullback will be. In my conversations and reviews I continually mentioned the fact that we are due for a correction. When it starts or how long it lasts I have no idea. This could be it or it could also be a head fake no one knows for sure. All I am sure of is your portfolio’s have significant diversification which is, in my opinion, the key to long term performance.
Other things to put into perspective:
- Corporate profits are strong.
- The economy is expected to grow around 3% which we haven’t seen for years.
- Lower taxes will have a positive impact on consumers and equities.
- Unemployment is low
- Energy prices are still low, although crude is over $60/barrel.
- Housing market is strong across most of the US.
- Interest rates are still historically low.
- Rising interest rates, I expect the Federal Reserve to continue to increase rates. This will have a negative impact on fixed income (bonds), mortgages, car loans and business debt.
- Rising inflation, this has been expected for years and I believe we are beginning to see signs.
- Wage/salary pressure, increasing wages will be good for the consumer (more money to spend) but are a major cost component of corporate balance sheets. This could cause increases in the cost of goods and services.
In Summary, I don’t see anything in this sell off more than a much-needed correction. Nothing I read indicates that a recession is imminent. I hate to use a cliché but I view this as a buying opportunity. As always if you have any questions or concerns please don’t hesitate to give us a call.
G. Pete Fields, CLU ChFC
The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee any future results.