Weekly Market Review - February 7, 2018
By Brad J. Rathe
Chief Investment Officer
February 7, 2018
Due to the heightened volatility over the past few days, rather than including the typical Weekly Market Review, we would like to discuss our thoughts and approach with regards to the recent market pullback and increased volatility.
For years, market volatility has been relatively low. Last year we experienced the lowest volatility in history, with Wall Street's standard line "buy more on the market dips." After substantial market gains and the reality of potential concerns in the economy, it is not surprising to see larger volatile swings in the markets as they try to find equilibrium.
We are still cautiously optimistic about the year ahead as the underlying fundamentals continue to be very good. The economy is experiencing a robust job market with wages starting to pick up. Both U.S. and international economies continue to grow at a solid pace. The tax policy that was passed in late 2017 is putting more money in most peoples' pockets to create more consumer demand and potential economic stimulus.
Very strong growth brings the reality of potential longer-term, negative consequences. For example, inflation appears to be picking up giving interest rates a boost. Stock market valuations can be impacted by a higher interest environment. The dollar has also been impacted with a rough start to the year. Credit spreads on bonds and other debt investments and the stock market overall still look reasonable, but there are pockets of risks including student loans, auto loans and particular sectors of the stock market. We will monitor these areas along with other potential issues that may pose a risk to the ongoing strength of the economy.
During times like these, our overall risk management process vigilantly evaluates the markets for probability of experiencing a longer-term correction and true fundamental issues in the economy versus temporary pullbacks because the market has been overbought. We continuously examine the factors that may increase long-term risks for the markets. On an ongoing basis, we rebalance portfolios to sell overvalued assets and look to buy undervalued assets according to clients' risk tolerances. We are currently assessing and completing due diligence on potential new investment opportunities to be added to our clients' portfolios, and to bring more balance in volatile markets in the future.
Today's increased volatility creates opportunity, although we see some potential long-term concerns. Overall, we stay cautiously optimistic.
If you have any questions or concerns, please reach out to your advisor to discuss. At this time, you also may want to meet with your advisor to review and update your risk profile.
Unless otherwise expressly indicated, the opinions or views expressed in this article are the author's own and do not reflect, and may differ from, the opinions or views of Strategic Financial Group, LLC or others within Strategic Financial Group, LLC, including its officers, managers, owners, employees or other service providers.