Spring 2018 Market Quarterly

Where is Spring?

With only a couple of exceptions, spring 2018 has been quite cold here in CT. As I write this newsletter, I’m watching snow falling here in Goshen. Temperatures have consistently been in 30’s and low 40’s, which is a bit depressing. It was a long and snowy winter, so I admit to being a bit impatient for the change. I hope you all made it through the winter in good health and we wish you a pleasant and safe start to the warmer weather of spring.

John, our new hire last March, just celebrated his one-year anniversary, so, I guess I shouldn’t refer to him as “new” anymore. John has learned much about the financial planning process. He is diligently working to help build our collective business. We enjoy working together and our new office dynamic. Our business has grown, and we look forward to continuing our work with existing clients and bringing new ones into the mix.  We have much to be thankful for.

Last Quarter Round Up

The first quarter of 2018 marked the first negative quarter after nine consecutive positive quarters. U.S. stocks as represented by the S&P 500 index were down -0.76% for the quarter. Global stocks ex-US were down -1.33% for the quarter. Emerging market stocks were the only positive region up +1.28% for the quarter. Bonds were also down with the Barclays aggregate index at -1.46% for the quarter. Short-term US treasuries were up +0.34%, likely a result of being considered a safe-haven from the sale of riskier assets.

All three major U.S. stock markets (S&P 500, Dow Jones & Nasdaq) hit new, all-time highs on January 26, 2018. Then, starting the very next day, a sell-off began, with no apparent initiator. My sense is that investors have been concerned about us being overdue for a market correction. It didn’t take much selling for the idea to be embraced, and the selling continued until the S&P 500 was down -10% by February 8. On top of that, we had our own Federal Reserve (Fed) raise short-term interest rates again, with a slightly more hawkish tone regarding interest rates and inflation. Investors and markets seems quite concerned about interest rates and that helps explain the bond losses for the quarter. Don’t get me wrong, I believe the Fed is correct in raising rates, but I am not in agreement with fears of hyper-inflation or a bond meltdown. I believe the interest rate adjustment policy has been slow and well-warned enough for the bond markets to accommodate..

Current Quarter Outlook

Looking ahead, the big question is “where do we go from here?” Not an easy question. Granted, it has been quite a while since the last market correction. And January was an unusually strong month in the markets so a correction wasn’t entirely unreasonable. We seem to be at a crossroads where the global economy is strong, and the U.S. passed tax reductions, but market uncertainty and volatility indicate concern. The current administration in Washington doesn’t help with near constant verbal instigations, or even more obnoxious Tweets. I think the U.S. markets will settle-down, but it will take time. The U.S. economy needs time to adjust to its new tax structure, and we should be seeing significant cash being re-patriated to the U.S. from foreign earnings. That could prove to be a headwind for the markets. I don’t see a slowdown or recession coming in 2018, but I do think it is possible as we get into 2019. I’m not suggesting anything like what we saw in 2008, but a mild slowdown could be a good re-set for the U.S. economy.

My momentum indicators continue to suggest global stocks are in control, so I will hold those positions in appropriate portfolios. I intend to add more to both International and Emerging Market positions with a slight underweighting to U.S. Value. I will continue to hold emerging market and multi-sector bonds with an underweighting to the aggregate bond index. In alternatives, I’ve made a change to incorporate an equity long/short position and removing exposure to global real estate. This is a defensive move in case the market corrections resume.

Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Connecticut Department of Banking.

This newsletter is for general information only and should not be considered investment advice.  Investors should consult with a trained investment professional to discuss their particular situation.