1st Quarter, 2018 Market Update

February 11, 2018 by  
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As you may be aware, the market has finally show signs of volatility.  As may also know, we are not surprised.  We have said many times that a correction is overdue and volatility is not always a bad thing.  In fact, in this case we believe it has resulted in a “healthy correction”.  Historically, markets have correction of 2% – 5% regularly through the year.  Despite, the recent correction of about 10%, our equity portfolios are up over 13% on average for the last 12 months running.

We continue to monitor and make sure that our clients’ needs are met.  In some cases we are enjoying the gains we took over the past 12 months and in the case of longer of clients with longer term horizons we are taking advantage of lower prices to put cash on the sidelines to work.

 

If you prefer, one of our prominent, affiliated portfolio managers, SEI Private Trust, has a brief commentary which will elaborate more on recent market activity (see below).

Also, if you have not received our updated client agreement, which we mailed and emailed a month ago, please let us know.  It is essential that we have a signed copy of this agreement on file before the end of February.

Best Regards,

Richard St-Laurent,cwp

 

Commentary
February 2018
© 2018 SEI 1
Stock Prices Slide as Market Volatility Returns
By: Kevin Barr, Head of SEI Investment Management Unit
The extended period of market calm that investors have enjoyed in recent years has come to an end.
While market declines can be disconcerting, they are normal. Endlessly rising markets are not.
The volatility serves as a reminder of the value of focusing on achieving goals rather than on daily stock price movements.
Stock market declines in recent days have put many investors on edge. While economists and professional investors debate whether this is merely a short pause in the market’s long upward trajectory or the beginning of an extended downturn, investors worry about losses in their portfolios. We have said for some time that a market pullback would not be unexpected given the notable gains in stock prices in recent years. We do not think the pullback means that the U.S. economy is heading into recession.
What’s Moving the Market?
Following an extended period in which the U.S. Federal Reserve (Fed) supported economic recovery by maintaining historically low benchmark interest rates, the U.S. economy has regained strength and the labor market has tightened to levels consistent with full employment. The introduction of tax cuts, coupled with increasing wage gains, raised concerns over higher inflation expectations and the possibility that the Fed would be forced to raise interest rates more quickly than expected—causing the first notable market contraction in about two years to take place on Friday, February 2. The selloff continued on Monday, February 05, erasing year-to-date gains for major equity indices.
Our View
Investors have enjoyed a long period of relative calm in financial markets, making the return of market volatility an unwelcome interruption. Although volatility can be unsettling, we’ve seen it before. Market movements of 2% or more have been frequent occurrences at various periods in the past, and declines of 10% or more have historically occurred about every two years.
U.S. corrections generally last around three months and, despite their regularity, the average annual return for the S&P 500 Index over the last 50 years has been 10.05% (as of 12/31/2017)1. Whether or not the current decline will become a correction is anyone’s guess.
Predicting the direction of short-term market movements is, at best, more art than science. In our view, putting energy into developing and maintaining an investment plan that is designed to help you achieve your goals within a timeframe and level of risk of your choosing is a more prudent approach. This is the foundation of SEI’s goals-based investment strategy. The objective is to create diversified portfolios designed to provide more consistent returns over time.
In summary, market environments like today’s serve to remind us how important it is to have a disciplined and well-designed approach. While day-to-day movement in stock prices (both up and down) are par for the course, investors are well served by remembering that daily, weekly, monthly, even quarterly market movements are often little more than noise for a portfolio that has a time horizon measured in years or decades.
1Source: Professor Aswath Damoradan, NYU Stern School, http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html