20 Apr First Quarter Market Turmoil
The first quarter of 2018 was certainly a different story than last year with stocks and bonds posting losses for the first three months of this year. There were not many places to hide or generate positive returns as markets swung wildly and brought concerns of crashes back to the forefront of our clients’ minds. Last year was easy sailing with no violent drops and historically low volatility. Many were expecting this to continue as the economy advances at a good pace. Expecting the markets to continue as they were is something known as recency bias. What this means is that whatever has happened in the immediate past will dictate what people’s expectations are of the future. If times have been good they will continue to be good or the opposite; if things have been bad they will continue to be bad. It is hard to find a more suited environment for this cognitive dislocation than investing. We see it time and time again and unfortunately this is not how investing and markets function. Markets constantly transition from tranquility to chaos and back again only to have the majority forget that this is their natural order and function. As if life.
2018 PERFORMANCE YEAR TO DATE Q1
S&P 500 Index -0.8%
Dow Jones Industrial Average -2.0%
Russell 2000 Index -0.1%
Euro Stoxx 50 -1.6%
DAX Index (Germany) -4.3%
MSCI EAFE 0.9% -1.4%
MSCI Emerging Markets Index 1.5%
Bloomberg Barclays U.S. Aggregate Bond Index (bonds) -1.5%
From our viewpoint and research we believe this recent wild ride is nearing an end and expect a positive environment for the rest of the year. The dominating stories of trade wars, political wars, inter country wars, celebrity wars, racial wars, and any other kind of war is nothing new. The world economy is strong, corporate profits are strong, employment is strong, inflation is low, interest rates are low, housing is strong, etc… Markets have pulled back alleviating the concerns of a bubble and stomping out the excessive optimism.
We are viewing this current rough patch as an opportunity and not something to fret about. No matter how long clients have been partnering with us, times like these will increase anxiety and induce hesitation. It is our job to help you make the best decisions based on our expertise and experience. We believe this is close to being over and are looking positively to the remainder of the year. If we thought the market woes were something more sinister we would be making protective changes to our portfolios and we have not done so. Our research is backing up this view point.
We cannot be 100% correct all the time, however making difficult decisions during trying times have been a rewarding strategy. We are available to discuss further by phone or in person.
The Sklar Capital Team