News

Market Update: February 2018

February 15, 2018

February 15, 2018

Dear Diary, 

I have to admit, I’ve been a little slack lately. These past few weeks have been rough. As you know, I have a “new love.”  No, it is not like that, I am still married to my wife of over 50 years, and I really do love her. 

But, I have really become infatuated with the stock market over the past few years and the relationship has been growing almost “lovingly.”  That is, until these past few weeks. 

The market actually went…down! 

Yikes! Yes, it is still up for the year. But, you know, it just does not feel “the same.” 

So, I didn’t write because I decided that maybe I needed some time for myself and I needed to take a break. After all, it was Super Bowl weekend, and I was very hopeful that my Eagles could pull off an upset.  E-A-G-L-E-S, GO EAGLES. Then they WON!  

How great is that? What could go wrong now?  Everything was all of a sudden better again. 

But now… 

Everything is upside down again! Recently, the market was down 4.6% after having been down over 1500 points. It closed down 1,175 points for the day and now we are BARELY up for the year…for the YEAR!  It has not been down as much as 3% over the last thirteen months!  It has not been down over 5% for more than 376 trading days!  That is an all-time HIGH.  At one point we were down almost 10% from the highs of earlier this year…just a few weeks ago.  The S&P just finished its 10th straight monthly gain.  That was the longest such streak since 1959, which was 11 months.  

I feel really lost and confused.

_________________________________________

Ok, enough!  Losing money is no laughing matter, and I want to reassure you that all of us at QPW take all of your assets and their security quite seriously. Whenever we go through a period like this, we have to take a hard look at where we stand and what should we tell our clients.

First of all, we are here to talk to you should you have a desire to have that conversation. Interestingly, last week I only had two conversations with clients about what was happening, and those were longer-term strategic discussions rather than immediate market-reaction type of conversations. As you know, we have been building a defensive strategy around our client portfolios, and see no reason to shift from that position, yet.

What is the market to do from here? Quite honestly, we wish that we knew. The markets have been heavily overbought for quite a time period.  We have all heard this for decades (well, some of us): “Tall trees never grow to the sky.”  As of last week, according to Investor Intelligence, the amount of bulls grew to a 66% ratio of investors, and the amount of bears fell to 12.6%, both 32 year records. There is not a lot of room for surprises when numbers become that lofty.  What could these surprises be?  Answer: UNKNOWN. That is why they are called surprises.

Here are the knowns: Markets rarely die of old age. They are usually triggered by something.  What could those triggers be? 1) A recession would hurt, however, there are no signs of recession on the horizon for 2018 and maybe even 2019.  Markets tend to lead these events by many months.  2) Geopolitical events are always on the horizon in today’s world.  None of that is “new” news in the last two weeks. 3) The Fed could foul things up by raising interest rates too quickly.  However, very few of the resources upon whom we rely believe that we are near that “tinder point” yet.  4) Illiquidity in the ETF market…perhaps, but too early to say by a long shot.

Our advice? Sometimes doing nothing is the right thing to do.  My bet, and it is only that, I believe the next 10% move in the markets has a better chance of being up than down from here.

If you are nervous now, let’s have a conversation and develop a strategy with which you will be comfortable.  Please call any of us. If you are not nervous and are thinking about possible opportunities that may exist, same answer. We agree, but they may be limited in the bigger picture of things.

Should we materially alter your investment strategy? With no uncertainty, absolutely NOT. That is why all of our strategies are developed with your involvement and suited to your needs.

That will never change.

Now, getting back to the Eagles win: These are only observations. An NFC win has translated into an up market 82.5% of the time vs. an up market only 62.5% of the time when an AFC team wins the Super Bowl.  Also, when an NFC team wins, the average annual performance is 10.8% vs. when an AFC team wins, only 5.8%.

Finally, according to LPL Financial, one more set of statistics: Mid-term election years tend to see the largest pullbacks of the four year “presidential cycle”.  Since 1950, in mid-term election years, the S&P 500 has been down an average of 16.9% at its intra-year lows. However, those lows are then followed by posting an average gain of 32% in the subsequent 12 months.

All clear?

As always, please call any of us if we can be of any assurance or needed clarification.

 

Sincerely,

Herman L. Rij, CIMA®

Chairman, Founding Partner

Quadrant Private Wealth

 

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