Have you ever overreacted? Of course you have. Maybe your spouse did or said something that normally would only be mildly irritating, but for some reason on a particular day it really upset you. This might cause you to say something you later regret. The chances of us as human beings overreacting to something increase when we are tired, hungry, or under the weather. In other words, when we are under duress it is not uncommon for us to be moody.
I would argue when markets are tired and hungry they are more likely to be moody as well. After nearly ten years of economic expansion and large market gains the market is perhaps a little tired and moody. Ultimately in the 4th quarter of 2018 the market overreacted to news from the Federal Reserve. Language that normally the market would find only slightly irritating triggered a crash.
As we know, overreactions often lead to regret and apologies. For lack of a better analogy, the market apologized in the first quarter of 2019. If you are not a fan of my amateur analogy, the facts are simply this:
- From October 1st 2018 to December 24th 2018 the S&P 500 return was, -19.34%
- From December 26th 2018 to March 31st 2019 the S&P 500 return was, 15.30%
I’m a very visual learner. Reading the numbers is great. But sometimes numbers on paper don’t do as good of a job telling the story. I think the chart below really exemplifies how volatile Q4 was and how Q1 has been pretty graceful.
In our opinion there were three major market headwinds in 2018 particularly in the 4th quarter.
- The prospect of the Fed raising interest rates further in 2019
- The trade dispute with China
- Concerns over slowing global growth
Today, the market is acting as if headwinds 1 and 2 are essentially gone. In particular, the Fed has indicated a shift in its policy, with some market participants believing there could be an interest rate cut this year. The China trade dispute is by no means resolved but the market seems to believe that a deal will get made before any additional tariffs start to impact the economy.
As we look toward the rest of 2019, we at FSG are carefully monitoring the 3rd and still most prominent headwind and that is the concern over slowing growth. The economy is global and despite the fact that the U.S. is still seeing strong economic data there is indication that growth is slowing domestically and abroad. If economic growth slows faster than expected, market growth will be impacted as well.
The limited volatility in the first quarter is a reflection of concerns being alleviated. The last major concern is unlikely to be alleviated in the 2nd quarter. It will take some time and persistent growth globally to ease investors minds. This may mean that volatility will return in the 2nd quarter and that is okay. Volatility is a normal aspect of investing. Long term investing is about accepting volatility as opposed to trying to eliminate volatility through market timing. Jumping in and out of the market is a fool's errand so we do not do it.
Our philosophy has always been to own high quality investments in a variety of asset classes. We may make changes from time to time in order to adjust to the data we have but by no means are we able to time the market. We as advisors do our best to keep you informed and educated on our investment philosophy which is in part why we schedule so many review meetings. As always you have questions or concerns on your accounts please do not hesitate to call!
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
This market update was written by Brice Carter.