2018 Q1 Market Review | The Old Normal
The clear theme for first quarter 2018 was the return of volatility in capital markets. After a long period of much lower than average volatility (in 2017, the S&P 500 hit 64 record highs, with only four single-day declines of more than 1%), this has been surprising for many investors. In reality, we have only experienced volatility that is moderately in excess of the long-term average, but that is not the popular narrative. Geopolitical concerns, trade wars, interest rates, equity valuations, expanding deficits and slowing growth in what may be the latter part of the business cycle are all ongoing concerns that have been suddenly thrust into focus.
We expect to see continued, but moderating, expansion tempered by monetary policy that is driven by inflation concerns. Strong average hourly earnings and both consumer price index and producer price index data may prompt some shift in tone from the U.S. Federal Reserve, but emergence of inflation is in line with expectations given the strength of the domestic economy and labor market. It is reasonable to expect a transition from stimulus to a tightening fiscal policy and this should be, for the most part, reflected in market prices.
We’ve been here before. While no previous scenario is ever exactly the same as the current situation (thus, the cry of “but, it’s different this time!”), none of the issues at the top of the recent narrative are new. Does anyone remember the Greek crisis that was almost certain to bring down the EU and infect the world economy? The impending doom of the government shutdown? As always, have a plan and a balanced investment strategy that supports your goals. Click here to view the 2018 Q1 Market Review.