Good morning. Stock futures are sharply lower as investor anxieties are heightened by the seemingly inexplicable downdraft in the equity markets. Although nobody can predict the timing or severity of a pullback, one thing is certain. They try one’s nerves. That is why we build each client portfolios and allocate the capital that they have invested with us for the long-term and one that will survive many different market environments.
The mistake that average investors make is that they allocate capital based upon the news/noise of the day or the short-term activity in the markets.
Here are several issues that contributed to this pullback:
- the Fed may be behind the curve with monetary policy
- inflation is just around the corner as is evident from wage growth in the most recent nonfarm payroll report released this past Friday
- the yield on the 10-Year U.S. Treasury note had recent to 2.86% recently from a closing 2017 2.40%, a rise of nearly 20%
- sentiment had become too bullish and that is a contrary indicator
- the market serves a slice of humble pie to ALL, including President Trump who had recently been pointing to the rise in stocks as evidence of his success
- volatility was at or near an all-time low (as was evidenced by the fact that yesterday marked the end of a 404 day run in which the S&P 500 had not moved more than five percent from record highs) and that does not last forever
- to the aforementioned low volatility computerized algorithmic trading is aligned globally along similar trigger points at which to sell. These are just a few.
The past few days have been trying. However, we believe that the economic fundamentals of the domestic as well as global economies are sounds and that the recent inflation scare as well as interest rate rise will flatten over time. Our policy, also noted above, is to make certain the allocation of the investments that our clients have entrusted to us are in line with their objectives and to readjust this would be a nod (perhaps justifiably so) to risk tolerance. Absent any specific direction to the contrary we will continue on that prudent course. Feel free to call with any questions/concerns.
Dennis P. Fagan
President, Fagan Associates, Inc.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, please call 518-279-1044.