Finally! The market has had a pullback. But not with catastrophic results. We closed the year with the S&P at 2,673.61 on December 29, 2017. As of the close today, February 6, 2018, the S&P has closed at 2,695.14. This means that volatility is back after a 2017 that was just, well, HUGE! As I have said a million times: If nothing has changed in your goals and/or life, just trust your allocation and the manager’s ability to adjust within that allocation. I do believe that more volatility is coming this year, but that the overall stock market looks to be in good shape, and the underlying economy is stronger than it has been for several years.
Let’s do a recap of what I had put into this column immediately after the Presidential election, and see how that panned out; and then look forward.
- The NATIONAL DEBT still is the biggest drag. How rising interest rates will affect our ability to pay for this has recently again become a concern, and was a big contributor to the recent market concerns. Why? Because as the economy around the world grows, inflation becomes a concern. This means that the Fed, which is also trying to unwind all of the debt purchases that have inflated their balance sheet, will likely raise rates at least a couple of times this year to keep the economy from over-heating. This is an art as much as a science, so the markets are a little nervous about the ability of the Fed to navigate smoothly.
- The Regulatory Environment is much better for businesses, and has resulted in more optimism and (based on the GDP increases) some significant growth.
- The impact of Tax Change is still not fully understood; and I will be shocked if many “tweaks” aren’t made as the tax policy is refined. However, the early signs for mid-to-lower income citizens (but maybe not in NJ, NY and California) and for corporate income statements have been very positive.
- Healthcare Reform was derailed by Congress, so who knows when that will happen again and what the format will be.
- No real impact to Trade Policy has occurred yet; but the Davos reception for the President was very interesting.
- We MUST get off the dime on Infrastructure and Defense Spending. Everybody seems to agree about these, so when these are put into effect there should be a massive increase to economic activity given the equally massive needs. Everybody has an opinion about the level of spending on certain things, but I hope that both sides can come together on these issues, since infrastructure and defense are very much in need of a rebuild.
Going forward, we expect the following:
- EAGLES FANS WILL THOROUGHLY ENJOY THE LONG-AWAITED SUPER BOWL WIN;
- Continued economic growth, which will be greatly accelerated when the infrastructure and defense rebuild finally starts;
- Market volatility will continue, and markets will be greatly affected by interest rate moves, inflation concerns, and all the usual political and other nonsense; but
- OUR CLIENTS WILL CONTINUE TO NOT PANIC ON TEMPORARY MARKET MOVES AND WILL STAY FOCUSED ON THEIR LONG-TERM PLAN.
Please let us know if we may be of assistance.
by Ronald Donato, Jr., CFP®, MBA
Director of Financial Services