Market commentary

looking at the bigger picture

Written by Nitin Manohar
February 8, 2018

When we experience market volatility like we have this week, it’s easy to get caught up in specific details instead of looking at things for what they truly are; the bigger picture that tells us how the economy is really doing, and how to proceed as we move forward.

The has Dow Jones experienced a 1000 point swing a few days ago, understandably creating concern among investors. People were left wondering if the drop had ended, leaving us at the bottom of the downturn, or if there was worse to come. Historically, we can look at the VIX or CBOE index to make a judgement on this. As the VIX broke 30 on Tuesday, it indicates that the worst is over and any ongoing correction would have ended. We will see more in the days to come, but if the VIX settles even lower by the weekend, we’ll know it to be true. That said, it’s important to remember that this downturn has not even technically qualified as a market correction – and though it may seem like it, this volatility isn’t completely out of left field. This is simply a valuation adjustment in response to rising inflation expectations. We can identify several factors that led us to this week, including higher federal interest rates, higher inflation and even high inflation expectations. A dramatic couple of days on the market have been had – of that we’re certain. But there is no need to panic or view this week as a precursor to what’s ahead.

Inflation, the markets and what to expect

Inflation is complex in that by the time most people notice it, it’s already happened. If you look at the recent strength of the U.S. and global manufacturing markets, there is reason to confidently predict inflation growth throughout the coming year. Recent market data shows substantial economic growth in the manufacturing sector and others, with inflation sure to follow. There is no reason to believe that recent market volatility is indicative of problems to come. We have seen periods like this in years previous, such as in the early ‘70s when rising interest and inflation rates corresponded with a fall in the S&P 500 Index. The equity market recovery they saw then is similar to what we can expect to see in the near future. We see the bigger picture and we stay the course. In the meantime, our team is carefully monitoring all portfolios and client investments, and is able to answer your questions as needed.

The bottom line

Sometimes, we need to experience some turbulence before hitting clear skies again. When this rocky period is over, we expect to see good things for our clients in 2018. My team believes the equity markets will soon return to a focus on economic growth and earnings, which should continue throughout the year. The path is not always straight and even, but our wealth management approach is both proven and reliable. Knowing this, we have every confidence in our process and your investments.