06 Feb January, 2018 Review and Outlook
Call Today to Schedule Your Review:
With a month already passed in 2018, be sure to call us today if you have not already done so to schedule your personal review, either in person or online via our Go-To-Meeting option. Now is a great time to review and update your long term financial planning, investment objectives, and risk. Call now-405-844-9826!
Tax Forms Coming Soon:
On January 31st Trust Company of America mailed out all 1099-R forms reporting any distributions from retirement accounts (IRA’s, etc.) in 2017. All other regular tax forms such as 1099-DIV, 1099, etc. will be mailed out February 15th. There will also be a CSV (Excel) file available as usual to download all transactions for taxable accounts into most tax preparation software programs. We are happy to provide this to your tax preparer when needed in order to help save time and money.
2018—Stocks Started Strong in January
Any thoughts that 2018 might start with a pause in the bull market were quickly dispelled in the first week of the year. A “buy the rumor, sell the news” view on tax reform has shaken out to be more aptly described as buy the rumor and buy the news. In our opinion, a great deal of the credit goes to the dramatic reduction in the corporate tax rate—from 35% to 21%, beginning in 2018.
On January 1, analysts were forecasting a 12.2% rise in 1st Quarter 2018 S&P 500 profits (Thomson Reuters) —pretty impressive. By January 31, analysts had sharply raised the Q1 estimate by a full 5 percentage points to 17.2%. There’s only one word to describe the dizzying upward surge in estimates—astounding. And it’s not simply Q1 2018; analysts have sharply boosted profit outlooks for all four quarters.
As we’ve mentioned in the past, earnings and expectations of earnings play a big role in the stock market price equation. The run-up we’ve witnessed in January is due to investors pricing in a much rosier profit outlook.
By month’s end, a modest bout of volatility re-entered the landscape, as investors took note of an upward creep in Treasury bond yields and inflation concerns. It’s a reminder that stocks don’t only rise, but can move lower, at least temporarily, as well. For the month of January, the Dow Jones Industrial Average gained 5.8%, while the Standard & Poor’s 500 rose 5.6% for the month. So far in February, a past due correction appears to be underway.
Let’s Keep the Recent Market Moves in Perspective:
We had been expecting a 5% plus or minus “correction” in the stock market at any time, and planned to view it as a temporary drop in stock prices while we ride it out and take advantage of it when possible. We also expected more volatility after last year’s lack of almost any market volatility. We can probably expect volatility to return as a normal part of investing in stocks once again.
A stock market “correction” is typically considered a 10% drop in price. With the Dow dropping over 1,175 “points” today, the index is now down 2,270.96 off it’s high of 26,616.71 reached back on January 26, 2018. (Google Finance) In percentage terms, this is decline of 8.53%, still not the full 10% correction amount. The Dow is still 21.41% higher over the past twelve months, even after today’s decline. (Google Finance) We have to remember to look at the percentage change for the market indices, not the “point” change since we are now at a much higher point level. According to investment firm Deutsche Bank, the stock market, on average, has a correction every 357 days, or about once a year. Our last correction was in 2011. Long story short, corrections are an inevitable part of stock ownership, and there’s nothing you can do as an individual investor to stop a correction from occurring. Corrections only really matter to short-term traders, not long term investors.
The basic fundamentals are still in place for continued economic growth, corporate earnings, lower taxes, and higher net wages. None of these has changed over the past week. We rebalanced our portfolios last week for all risk levels, and remain cautiously optimistic moving forward in 2018. Interest rates rose in January (bond prices fell), with the Bloomberg Barclays Aggregate Bond Index off 1.2%. (MarketWatch) Our fixed income/bond holdings should have helped offset some of the stock market drop in our portfolios today, as bond prices rose and yields dropped while stocks fell. We will continue to monitor the situation and are able to make changes if warranted.
As always, please don’t hesitate to call at any time if you have any questions, or if we can be of further service at any time. We appreciate the privilege to serve each of you now and in the years to come.
Your TEAM at F.I.G. Financial Advisory Services, Inc.