After a multiple year calm in the equity markets, we finally slipped into a correction (defined as a 10% or more drop from recent highs), and the result was a number of chaotic 1000 point swings in the Dow Jones Industrial Average. What began as a simple report on wage pressure, turned ugly fast accelerating into an interest rate hike panic and systematic selling. Corrections are a normal and healthy cycle of capital markets, we have experienced 36 of them since 1980... the latest just happened to arrive in a sharp and short decline. We believe more volatility is ahead, and this recent turbulence was a great opportunity to ‘stress test’ portfolio risk and gauge downside fluctuation.
The markets have bounced back strong in the last few days, leaning heavily on positive fundamentals like economic and profit data points. We continue to stay positive on the overall health of the markets and global economy, but it is an important time to not forget about a balanced allocation.
One data point to keep a closer eye on is US inflation, which is beginning to move on us. I’ve included a link below from Alliance Bernstein that I thought would be of interest. It makes a case why we may see more hikes from the Fed in 2018 than initially anticipated.
https://www.alliancebernstein.com/library/us-inflation-signs-are-pointing-up.htm?seg=18&lang=en
Have a great weekend,
-Jay
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.