The four most dangerous words in investing are: ‘this time it’s different’.
-Sir John Templeton
The recent market selloff is understandably causing concerns with investors. Before we delve into what has transpired over the past few days, I think it is important to look at where we have come from. Prior to last Friday (the first significant down day in recent memory) the stock market has basically gone straight up. The S&P500 experienced 15 consecutive months of positive returns with historically low levels of volatility. Perhaps people thought it was different this time and that markets simply could not go down.
In 2017 the S&P500 increased 21.83%, its ninth consecutive year of positive gains since the financial crisis of 2008. Then in January it climbed 5.73% alone. While we had a host of good economic and corporate data flowing in, we probably got too high too fast. As I mentioned last Friday in our Monthly Market Commentary, we had a good jobs report- 200,000 jobs added and higher wages- that spooked the bond market. This caused interest rates, which were already creeping higher, to spike as bond investors began pricing in the prospect of higher inflation.
The selloff that resulted looks to be more of traders (moving on emotion) and less of investors at the helm. On the corporate side, Apple (the most valuable publicly traded company in the world) moved below their 200-day moving average and resulted in technical traders selling the company. While we do not follow technical analysis, it does impact the overall market, so we are mindful of the consequences. Wells Fargo was also hit in the market as the Federal Reserve will increase its regulatory oversight and limit its ability to expand.
The last few days appear to be more of a correction and less the start of a long bear market. It is healthy for any type of market to reset and shake off the excess. While it may take days or weeks to find a bottoming point for this selloff, we are still constructive on the long-term fundamentals. The silver lining of a market selloff, is that stocks are not as expensive as they were last week. Investors will be mindful of risks again. Our philosophy of broad diversification across multiple asset classes are built for times of uncertainty like these.
Please contact your financial advisor with any questions or concerns.
Update by:
Bill Roth, CFA
Investment Director