16 Mar March, 2018 Mid-Month Update
When preparing your 2017 income tax return, don’t forget the CSV (Excel) file available for download to most tax preparation software programs. This can make the reporting of your 2017 taxable transactions a simple and efficient process. If you need assistance with this, please don’t hesitate to call at any time. We are more than happy to send this to your tax preparer for you when you are ready to have your tax return prepared. Just let us know and provide us with your tax preparer’s name and email address, and we will take care of the rest! This can help reduce some of the stress for you at tax time.
First Quarter 2018 Coming to an End:
It’s hard to believe the first quarter of this year is already coming to an end! There have been several changes occur in 2018 already, from major tax changes to stock market volatility. This is the perfect time of year to review your overall long-term planning, investment portfolio and risk, and personal tax planning for 2018. If you have not yet done so, call today to schedule your personal review. We can either set up a meeting in person at our new offices, or if it is more convenient for you, an online review via the Go-to-Meeting option utilizing your personal computer, tablet, or smartphone right where you are! Call us today.
The U.S. stock market has continued to experience volatility so far in March that we saw beginning back at the first of this year. Since the correction of approximately 10% the U.S. stock indices experienced in February, the markets have managed to stay above the lowest close this year of 23,860.46 that the Dow Jones Industrial Average experienced back on February 8th. The all-time closing high for the Dow was 26,616.71 hit back on January 26th of this year. Today, the Dow is trading near the 25,000 level again. (Google Finance)
The quiet period has appeared to have ended for the financial markets that we saw last year. In 2017, the markets were unusually quiet, which was really not the norm. We experienced an upward drift in stock prices with minimal volatility. So what’s really the average or normal volatility for the markets for the past several years? There are different measures of volatility, and one is the VIX index, measuring volatility or sometimes call the “fear” index. Last year it hit new lows since it has been monitored, at levels just under 9, and only around 15 for a high. The average last year was just 11.09. The VIX hit over 80 during the 2008 financial crisis. The higher the number, the more volatility expected. So far this year, the range has been 9-37 and currently sits at just over 15. The historical average since 2004 has been 18.51. The average so far in 2018 has been 16.73, so we are more in line this year with the historical norm. (CBOE-Chicago Board of Options Exchange). BOTTOM LINE: Volatility at the current level is more in the “normal” range and we can probably expect this to continue moving forward.
Keep in mind that today, a triple digit move in the Dow is not what it used to be. At a level of 25,000, a 135 point move equates to only .54% change. A 100 point move is just .4%. Investors should focus on the percentage change, not the point change, regardless of index levels.
- Trade Tensions-Tariffs and worries over a “trade war”. Is it just rhetoric to negotiate trade agreements?
- Attitude of the Federal Reserve with new chairman-Jerome Powell. At what pace will interest rates rise this year?
- Turnover and uncertainty in White House staff and cabinet.
- When will U.S. economic growth pickup on a more permanent trend? Retail sales in February were lackluster and lower than expectations.
As we have stated in the past, the markets do not like uncertainties, and the above issues provide some uncertainty in the current environment. This can also add to market volatility in the short-term.
Fundamentals Still Positive Overall:
- Inflation worries on hold for now. The Consumer Price Index rose just .2% in February and was up just 2.2% year-over-year. The core CPI held at just 1.8% for four of the last five months.
- America is still “open for business”. Trump rolled out the red carpet at the Davos Conference with regulatory reform and reduced corporate taxes in the U.S.
- The job market continues to improve with a low jobless rate of just 4.1%.
- Corporate earnings have seen upward revisions to profit growth that have been impressive.
- Tax cuts, both personal and corporate, have yet to produce potential results since they were just effective January 1st of this year.
BOTTOM LINE: Recessions historically usher in “Bear” markets, with corporations seeing profit-declines and economic activity slowing drastically. We don’t see that happening this year moving forward at this point. Just put your blinders on to the day-to-day “noise” and focus on the longer-term results.
As always, please don’t hesitate to call if you have any questions or concerns, or if we can be of further service in any way.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be
invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into
directly. Past performance does not guarantee future results.