Q1 Market Commentary

The first quarter of 2018 is coming to an end and the market news is mixed. The Dow Jones and S&P 500 stock indices have basically been flat for the quarter. The market run that extended though all of 2017 seems to have peaked near the end of January.

The 2017 market gains were fueled by the promise of corporate tax cuts and deregulation. The Tax Cut and Jobs Act of 2017 was finally made law in late 2017. Many believe that the growth we saw was due in part the promise of the tax bill. Now that it’s law, there may not be much more growth coming.

Overall, the U.S. and world economy remains strong. Unfortunately, the Dow Jones has slipped in and out of correction territory this quarter while the S&P 500 is 9% below its recent peak. The market declines and volatility of late seem to be focused on technology and policy. Considering that Apple, Amazon and Google make up 10% of the S&P 500 index, problems with the tech sector can have a huge impact on the overall market.

Both Facebook (FB) and Tesla (TSLA) are the major drivers behind the tech sector slowdown. Facebook’s information sharing scandal has caused their stock to decline over 15% in last month. Tesla is down over 10% for the year and has recently had their bonds downgraded to junk status. Netflix, Amazon and Apple are also down.

As I write this, the White House Press Secretary is promoting the idea that economic growth will be stronger than last year because of the recent tax bill.  While the markets mostly ignored politics in 2017, investors may finally start to pay attention. The recent tariffs and the massive increase in public debt will most definitely impact investment decisions going forward.

What to do next

With the quarter comes to an end, it’s a good time to review your portfolio. Make sure to evaluate your comfort with the day to day swings. We’ve had nine years of continued market growth, so this could be the first time you’re seeing volatility like this.

If you have investments in a tax-sheltered account (such as a IRA or 401k), it’s a good time to rebalance. In your taxable brokerage accounts, be more careful if you’re looking to rebalance or change investment allocations. You’ll want to review potential capital gains before making any changes.

If you have questions or concerns, feel free to reach out. If I’m managing your portfolios, you may have seen trade confirmations for changes I’ve recently made. Expect to see additional confirmations as I rebalance this week for you. I’ll also be passing along additional information regarding this quarters investment performance.

Keep in mind, our investment strategy is based on the goals you set. Don’t worry about the day to day news when you’ve put money away for the long term. If you have near term goals, we’ve invested in a way to protect your money. I can’t predict the future… but history has shown that the market slowly rises over time.

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