WE Invest

February 8, 2018

Dear clients and friends,

Monday marked the first time since the June 2016 Brexit vote that saw the S&P 500 close 5% off recent high.  Monday also approached an intraday low of nearly ~9%.  While we hadn't reached an official correction (10%+ from high) the fear set in with many investors.  On Tuesday, equities whipsawed after testing that illusive 10% correction early on.  By the end of the day the market rallied, leaving many investors longing for the quieter days of 2017! 

Let’s focus on what we know:

  • Fundamentals are still in place: solid global synchronized growth, increasing domestic activity, improving capital spending and wage growth (finally).
  • We don’t see a recession in sight.
  • While equity markets have seen aggressive action, other risky assets have been more muted - such as Junk Bonds, surprisingly.  This gives us pause as this asset class should have followed the sell-off closely which makes us think there’s more volatility to come.

 And some questions yet to be answered:

  • Is the increase in Wage growth a sign of lurking inflation?
  • Will the new Fed Chair feel pressured into moving faster on rate increases?

 This market volatility was a nice test of the WealthEngage process.

  • Our strategic asset allocation doesn’t change based on short term volatility. We would need to see underlying fundamentals change.
  • Some of our stock holdings fell below our price alerts, but only a few closed at a price below the alert.  A pre-requisite for a sell.
  • Fixed income is being tested by fundamentals, inflation and Fiscal policy specifically.  We don’t want to take a lot of risk in Fixed Income, so we made some additional changes.
  • We continue to prefer equities and started adding to companies that were experiencing positive fundamental trends, were performing well technically, and had little headline risk prior to the melt-down.  From this list we looked at the stocks that have been hit hardest.

While the media certainly made this sell off scarier than it was, we should not be surprised if the equity markets have another attempt at a 10% correction, but we should keep a steady hand.  All in all, as stewards of your capital we continue to listen to the market and move diligently. 

Warm regards,

Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Bond prices and yields are subject to change based upon market conditions and availability. Diversification does not ensure a profit or guarantee against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

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