How quickly things can change. The market’s sharp pull-back in the 4th quarter of last year bottomed in late December as the S&P 500 dropped almost 20% from the September highs.
Another steady month for stocks in March brought the first quarter to a close with the S&P 500 rallying about 13% over the first three months of the year while international stocks also performed well closing the quarter up about 9.5% (MSCI World ex-US, YCharts), albeit both still down from their all-time highs. We are encouraged by the continued recovery of the stock market this year
February brought with it another strong month for stocks as markets continued to rally from the Christmas Eve lows. The S&P 500 finished the month roughly 3% higher which now leaves the index up about 11% for the year, and 18% from the lows in late December, but still about 5% from all-time highs (YCharts).
2018 has been a challenging year for investors as volatility returned with a bang after being almost completely absent in 2017 when stocks roared higher by almost 20% as measured by the S&P 500 (YCharts). Through December 14th the S&P 500 is down almost 3% after enduring two corrections of 10%+ throughout the year (YCharts).
2018 TLWM Annual Outlook:
2017 has been a good year for most investors as stocks have rallied steadily throughout the year. The S&P 500 (total return) closed higher each month of the year, is now up almost 22% through mid December, and we haven't seen a 3% pull-back in that index during the year (LPL Research, YCharts).
The first half of 2017 is in the books, and what a great start to the year it has been with the S&P 500 rallying about 8% (seen in the chart below), lead by the technology and healthcare sectors. While news headlines have created a constant distraction, particularly on the political front, the stock market has been steady as evidenced by remarkably low volatility.
Over the last six months investors have been focused on the political landscape, particularly on President Trump and the incoming administration; however, the Fed recently came back in focus as they raised interest rates by 25 basis points this month after a sequence of strong economic data (particularly unemployment below 5% and inflation approaching 2%).
As the market continues to reach new highs it's not surprising to see investors begin to worry as the mindset seems to be- what goes up must come down. We are strong believers in making changes within a portfolio if we feel that it's likely a recession is on the horizon. In order to make that type of forecast we need to have our finger on the pulse of the economy.
As we mentioned in our 2017 Annual Outlook, we see a potentially improving outlook for international stocks and thus continue to maintain exposure to both US and international equities. We believe the following factors warrant that exposure: attractive valuation, improving overseas earnings and fundamental economic data.
This year investors have had to face a number of curve balls. Brexit, Federal Reserve rate hikes, the US election, and a slowing global economy have grabbed headlines throughout the year. Despite that noise (and legitimate concerns) it's important to remember a couple of variables that can often move stocks higher (or lower): earnings, and earnings expectations.