SVA Plumb Financial recently hosted their annual Investment and Tax Update. This popular program features insights on the market, an investment overview, as well as financial planning strategies for the coming year. This is the second of a 2-part article series based on the seminar presentation.
2018 Market Volatility
2018 saw the return of market volatility. This market instability was especially hard felt since the prior year had such little variability. In 2017 of the 253 trading days only 8 trading days had a daily 1% or greater price change up or down. Investors became content as the stock markets across the globe gave everyone a smooth ride. Volatility came roaring back when 64 of last year’s trading days had a 1% or greater price change which was eight times greater than 2017. Looking historically, 2018 was just about an average or “normal” year for volatility, but that’s not what it feels like to investors in the moment.
These swings in market pricing can cause “alarms” to go off for investors especially when their portfolios can have big swings in value that don’t match upcoming needs such as retirement, college tuition or even a new home. At times the temptation to react or do something can be very strong. Investors that have a balanced, longer-term outlook based on solid financial planning can “stay the course” in these volatile times.
What’s Ahead for 2019
Today, we see the U.S. economic expansion continuing into its tenth year despite some modest deterioration of certain economic indicators such as the Purchasing Managers Index (PMI) and single-family housing starts.
In fact some of the conditions that seemed to most concern investors when the correction began appear marginally less troubling today.
- To name a few, the rapid rise in the dollar exchange rate has stalled, the Fed has softened its stance on future rate increases, and the U.S. and China appear to at least be talking about a resolution to their trade dispute.
- Furthermore, slowing inflation, continued Chinese economic stimulus, and lower interest rates and oil prices should act as supports for the global economy.
- Also, corporate profits were steady for the fourth quarter of 2018 and could accelerate in the second half of 2019.
- With continued strong employment and company earnings, the fourth quarter seems to be more of a market correction than the start of a bear market.
- However, we continue to monitor the possible risks to our outlook from areas such as higher tariffs, fed tightening or a sudden global economic slowdown.
When market prices drop precipitously as they have recently, it is human nature to start viewing events through a negative lens--even if those same events were overlooked just months earlier. What appears to have dramatically changed in the past few months is not economic conditions, but investor sentiment and the liquidity of stocks when faced with algorithmic trading and index fund selling pressure.
While price volatility and uncertain outcomes are an uncomfortable part of stock investing, investors have historically been rewarded with higher returns for accepting these risks. While there can be no assurance it will happen again, we do not see any clear evidence that leads us to believe the outcome will be different this time.
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All information herein has been prepared solely for informational purposes only and opinions are subject to change. Past performance is not indicative of future results and all investments involve the risk of loss of principle. For information on how these general principles apply to your situation, consult an investment professional. Purchasing Managers Index (PMI) is an indicator of economic health for manufacturing and service sectors.