Discover What You May Need

Broker Check

2nd Quarter Market Commentary

How to Behave on a Moving Train

Investors have shown their anxiety in no uncertain terms over the last three months: a 10% correction, plus the Dow’s 3rd highest point gain in history on March 26th after losing over 1,100 points on the previous Thursday and Friday.1

So, what does this mean? The current bull market began in March 2009. Last month marked this bull’s nine-year anniversary! Do we prepare for the up market’s final days?

It’s like riding on a moving train! You can jump off sometime. But, will you be left behind and miss getting to your destination? Or, do you party on in the Club Car, oblivious to the fact it’s a runaway train headed for a train wreck?!

Thankfully, trains tend to run on schedule and it may be helpful to review this market’s schedule, which in this case, is tied to the economy. Like a train ride, there are always unexpected circumstances that can throw your trip off schedule. Weather, mechanical breakdowns, traffic-forcing you on a side line for a while, all may disrupt your progress. For financial markets it’s the news of the day that may accelerate or retard your travel. Emotional reaction drives financial markets short-term.

However, over longer periods it’s the economy that determines market trends. So, despite the volatility that has rattled markets of late, the economic trend is decidedly positive.

Looking at growth, jobs, inflation and the Fed interest rate tightening, the picture on balance is positive on all counts.

  • Growth was 2.5% in the 4th quarter of 2017 and is expected to climb to 3% in 2018 or early 2019.2
  • Unemployment, currently at 4.1% is expected to fall as low as 3.5% before late 2019.3
  • Inflation remains benign at 2.21% in February 2018 and is expected to climb only slowly. The Fed expects inflation to end 2018 at 1.9%.4
  • Federal Funds Rate: Clearly, the economy is doing better. So, the Fed is more Hawkish. The projected three rate hikes could become four. But, that would still leave us at historically low interest rates.5

So, what are investors to do? H&A believes confidence in the economy to be well-founded at this time. Volatility and other “noise” is only a distraction. Small adjustments are likely appropriate as sectors wax or wane, and segments of the economy blossom or fade. But, the smart money will stay invested, probably over-weight equities. Safety, as always, is to know where the exits are and to know what to do in an emergency. So, we recommend staying on the train, in spite of the inconveniences of volatility. Ignore the bumps and clatter. It is probably best to sit back and enjoy the ride. Most likely staying invested will be the surest way to reach your long-term destination. Safe travels, my friends!

Sincerely yours,

 

David L. Harris, PhD, ChFC, CFP®
Wealth Advisor

(310) 318-3700
www.harrisadvisory.com


____________________________

[1] (2018, March 25). Dow’s third biggest point gain in history. Retrieved from  https://www.cnbc.com/video/2018/03/26/dows-third-biggest-point-gain-in-history.html

[2] Kelly, Dr. David. (2018, March 26). Fiscal Stimulus, Monetary Drag and the Investment Outlook [Webinar]. Retrieved from https://am.jpmorgan.com/us/en/asset-management/gim/adv/library/media/fiscal-stimulus-monetary-drag-and-the-investment-outlook-1383538660482  

[3] Kelly, Dr. David. (2018, March 26). Fiscal Stimulus, Monetary Drag and the Investment Outlook [Webinar]. Retrieved from https://am.jpmorgan.com/us/en/asset-management/gim/adv/library/media/fiscal-stimulus-monetary-drag-and-the-investment-outlook-1383538660482  

[4] Amadeo, K. (2018, January 15). U.S. Inflation Rate by Year: 1929-2020. Retrieved from https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093

[5] Amadeo, K. (2018, January 15). U.S. Inflation Rate by Year: 1929-2020. Retrieved from https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093


[If you would like a confidential review of your portfolio, call for an appointment, or book your meeting on-line at www.harrisadvisory.com. It is always free and without obligation.]