“Stock Market Falls to Levels Not Seen Since January 2018”


As the month of January closed, it was clear that global markets and economies are running on all cylinders.  After closing 2017 at all-time highs, the S&P 500 index has continued to move higher in 2018, with a 6% return in the month of January alone.  Euro-area economic confidence hit a two-decade high in the month of December.  Consumer expectations for future stock returns are at multi-decade highs.  With such a strong backdrop of growth, it was only obvious that the stock market party would continue.  Or was it?

One of the things we have noted in our last few commentaries is that corrections and downturns in the stock market are a regular part of life.  That was not the case in 2017, as the market only experienced a 3% dip in the midst of its stellar year.  We have been on the record in expressing that a correction should be expected in the near term.  Over the last week, it has started to happen as major market indices such as the S&P 500 and Dow Jones Industrial Average have fallen around 5%.  Concerns over inflation and interest rates moving higher has spooked investors.  Though the headlines (“Dow drops 1,000 points!”) may seem troubling, we want to remind our clients that this was to be expected, and in greater context of the last few years, it is a pretty garden variety correction.  It is also extremely important to remember that for the financial media, hype sells.  A headline about how “horrible” the market decline is will generate more views than one that describes the truth: “Stock Market Plunges to Levels Not Seen Since January of 2018” just doesn’t have the same catchiness to it.


Looking at the big picture, we do not see cause for concern.  The economy is still growing at an attractive rate.  The Atlanta Federal Reserve estimates the GDP growth will register 5.3% in the first quarter, its highest growth rate in the last five years.  Recently, corporations have revised their future estimates of earnings growth higher at the fastest rate in three decades.  The underlying health of the economy is strong. Looking forward, we believe that global stocks will continue to generate positive returns even though we may continue to experience pockets of volatility like we are seeing at the present.  We will continue to increase our allocation to foreign and emerging market equities, as we believe long-term return prospects are more attractive in those regions, but want to underscore that volatility is a regular part of investing and should be taken in stride.  We thank you for the trust you have placed in us and welcome you to reach out at any point if you wish to discuss the markets or your portfolios.