First Quarter 2018 Commentary
Last week, a prospective client came to my office to question me for a second time before making his decision on hiring a new advisor. When he arrived, the Dow Jones Industrial Average was down about 400 points. He was apologetic and explained that he didn’t want to take too much of my time as he was certain that clients were calling in a panic about the market. I assured him that I had as much time as he needed, the phones were not crazy and I was not worried.
Well, it has been a quarter for the history books in geopolitics. Not to be overlooked, the world of investing has also had an eventful quarter. After years of subdued volatility, stock markets around the globe began to quake again in the beginning of February. They have maintained a wild up and down pace through March. Also, after years of ‘dovish’ policy, the US Federal Reserve is raising interest rates, helping roil bond markets. Oddly enough, after all the daily back and forth, the S&P 500 index, which is a market barometer for very large companies, is down about one percent since the beginning of the year.
Did you say Down?
Yes, unfortunately the market does go down, although you must look back almost three years to find a calendar quarter when the stock market did go down. This year, the S&P 500 was positive. On January 26, it was up almost 7.5% from the start of the year- that’s less than four weeks. However, two weeks later, all those gains had vanished. From February 8 to February 26, stocks went back UP over 6%. March has seen more of this action but the bad news is that the early gains of 2018 have not returned, yet. Fortunately, we reduced equity exposure across many portfolios and preserved some of that ‘win’ for clients at the end of January and early February. While the timing looked impeccable, that was not the reason for it. Disciplined rebalancing, protecting capital, and focusing on reducing future volatility were the driving factors – we don’t time the market.
As always in the economic landscape, there are a great many variables and inputs that will determine future outcomes. These outcomes eventually show up in market performance. What is different these days is that there are significant changes coming to how the world, and especially the United States, does business. The ultimate impact of these changes on markets and national economies is uncertain and will take a long time to play out.
In the meantime, it is our mission to invest your capital appropriately for you. We cannot predict when markets will rise or when they will fall, but we do have a lot of control over the risk that is taken in portfolios. This brings me back to why I wasn’t worried on the afternoon I mentioned above. We pay careful attention to the amount of risk every client is taking in their portfolio and we are continuously monitoring in efforts to keep your portfolios squarely within your risk tolerance; especially when the market is down 400+ points in a day.
If you would like to review your risk profile and portfolio with me to ensure that they match, please feel free to call or email our office.
Scott Lasky, CFP