Volatility Returns! Is a Bear Market in the mix?
We say “NO”
Haven Wealth Group Bottom Line
2017 was an unusual year for equity markets in that volatility was the lowest on record. History suggests that continued gains and low volatility can’t last forever. During the first quarter of 2018 volatility returned. The S&P500 rose 5.7% in January, marking the best January on record. Equity and bond markets subsequently declined in February and March. First quarter returns for both stocks and bonds were negative, with the S&P 500 declining -1.2%. We are pleased to report that, overall, Haven Wealth Group outperformed both equity and bond markets during the quarter.
The declines in February and March were initially caused by sector rotation out of Technology stocks.
Subsequently, tariffs proposed by President Trump spooked markets. Markets continue to be concerned about a potential global trade war. Other reasons for heightened volatility include the Facebook privacy issues and President Trump recently targeting Amazon. These factors resulted in a much needed 10% correction in US equity markets.
We believe equity markets will continue to rise going forward. Fourth quarter 2017 company earnings were strong, and the vast majority of companies guided 2018 earnings significantly higher. As of today, 2018 earnings for S&P500 companies are expected to RISE 33% to $146.92 per share, impressive growth by any measure. Earnings estimates were materially boosted by the decline in the corporate tax rate from 35% to 21%, which will be effective in calendar year 2018.
Markets are indeed volatile, but this is normal. It is not normal for equity markets to go straight up without 10-20% corrections. We believe equity markets are reasonably valued, earnings, boosted by tax cuts, are strong, and markets remain in an uptrend. We raised some cash in your portfolios to reduce overall volatility. Cash will be redeployed once markets stabilize.
Thank you for continuing to put your trust in our team.
Richea, Charlie and The Haven Wealth Group