February 6, 2018. By John Wolfsberg:
The global equity markets came under renewed pressure on Monday, with the S&P 500 Index down over 4% for the day in a continuation of last week’s selloff. The decline in equities did not appear to be driven by any specific fundamental data, although increased investor concern over earnings, inflation expectations, and future interest rate hikes all played a part.
While the selloff makes for some strong headlines, we would like to emphasize a couple of points. First, the stock market had risen several percentage points to start off 2018, and after the selloff is down approximately 1% for the year. With equities having moved in almost one-direction (higher) in 2017, a market pullback was due at some point, as was an increase in market volatility from the extremely low levels seen over the past 12-18 months. In addition, U.S. economic and corporate fundamentals remain strong, and a rise in interest rates due to inflationary pressures stemming from an economic acceleration is not negative in the long-term.
We would caution against interpreting this selloff as the start of a bear market in equities – remember that bear markets are triggered by recessions (not valuations) and very few are calling for a recession in the U.S. at this point. So where do we go from here? No one can tell you for sure when the selling will stop. The most important thing investors can do is to continue to review their portfolios for the correct asset allocation blend between equity and fixed income. We believe in the financial planning process with ongoing discussions and review of an individual’s or family’s liquidity needs, both short and long term as well as risk tolerance. Our investment philosophy has always been and remains long-term in nature in which these factors are integrated yet we realize such volatility can be difficult for some to stay the course.
As always, let us know if there are any changes in your personal situation that may warrant a review of your portfolio allocation. We recognize these market moves can create anxiety for investors so please let us know if you have any questions.