Wow, That Was Fast!
Last Thursday, February 8, 2018 we entered “Correction” territory. A correction typically means an asset has declined by 10% in market value. This may be one of the fastest 10% corrections in history, bearing in mind that the Market Indexes hit their current year high, very recently on January 26th.
Why So Fast?
Perhaps the “reasons” are some of the following:
- A 10 year US Treasury Yield rise from 2.41% on December 31st 2017 to approximately 2.85% last Friday.
- Wage growth recently reported, exceeded most expectations.
- Somewhat high valuations on most Stock Indexes
- Most believe the Federal Reserve will increase rates 3 to 4 times and that it’s not quite priced into the Bond and Stock Markets.
- The Fact the Federal Reserve is no longer purchasing bonds for their balance sheet and they are now letting a percentage roll off.
- The thought that the recent Tax Act will accelerate the economy leading us into an inflationary period.
- Computer generated stock sales.
- Investor’s attitudes were becoming very optimistic.
My guess is that each item on the above list was part of the cause.
I’m confident you can add to the list.
Where Do We Go From Here?
“Certainty” is absent in knowing anything truly specific about the direction of the Stock and Bond Markets. The majority of Corrections have not turned into Bear Markets. A Bear Markets is marked by a 20% or more decrease in Asset value.
At this point, we expect corporate earnings to remain strong as well as short term economic growth. We do need to watch the level of rise in interest rates. Higher rates can translate into increase costs for Corporations to borrow, potentially reducing profits and slowing growth. Higher rates can also lead to higher Mortgage and Automobile Loan Rates which can slow down these two important sectors of our economy. It looks as if the recent level of the US 10 year of 2.4% is looking for a new range. How much higher will be important.
What Should You Do?
As always, your portfolio’s Asset Allocation should be aligned with your specific need for income and growth. Having a diversified portfolio has proven over time to be an excellent way to manage market volatility.
Rebalancing your portfolio periodically also may help your allocation stay consistent with your acceptable level of risk.
For additional information on our Investment Process, please click here, Investment Process.
*Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.