The stock market continues to bounce around much like it did the first quarter. Although quarter end portfolios were only slight down from market highs at the end of 2017, the volatility has left many investors wary of market performance going forward. Indeed, for those of us who are in the habit of regularly following the financial news, making sense of all the gyrations can make one’s head spin!
Despite the volatility, many underlying fundamentals behind the stock market’s rise are still quite solid. For example, first quarter earnings grew at an impressive 26% over the previous year fueled in part by the tax changes enacted at the end of 2017. This growth rate in earnings was the highest since 2010. The labor market also continues to perform quite well. The unemployment rate, at 3.8% is at record lows, matching the rate set 18 years ago. Wage gains, are growing at 2.7%. Overall economic growth should increase a respectable 2-3%, not bad for an economy close to its ninth year of expansion! Certainly there are risks to the expansion and they tend to get more of the headlines and grab more of our attention: increases in inflation and interest rates , escalation of tariffs as a result of tariff wars and the threat of a nuclear war with North Korea. These threats to our current expansion are real; however, it is far from clear that these perceived negatives will outweigh in the short term the underlying strengths of the economy and stock market.
Market experts have been saying for years now that we are due to for a market correction; however we have avoided making precise predictions about the market mainly because according to academic research such forecasts tend to be wrong! Sticking with your investment plan however is important. Two years ago the S&P was at what seemed like a market high with the market increasing by an impressive 18% since the beginning of 2014. Perhaps in June of 2016 some investors might have been persuaded to “cash out and sit out” until the market calmed down; however, since that time the S&P index has grown another 30%! In other words, not keeping invested in the market since 2016 would have cost the investor a significant amount of dollars in terms of unrealized gains: gains that would have been hard for any investor to make up.
Most understand that the latest bull run of the market won’t last forever. That is why it is just as important to track success in terms of achieving your goals versus the returns of your portfolio. Please let Christina or me know if you have questions about how you are doing compared to your current goals.