Monthly Market Insights | March 2018
Last month proved the Wall Street adage that, "Stocks climb the stairs up, but take the elevator down."
After an extended steady climb, stocks tumbled into correction territory in the opening days of February, setting the stage for one of the most volatile months in recent memory.
The Dow Jones Industrial Average lost 4.28 percent, while the Standard & Poor’s 500 Index sliding 3.89 percent. The NASDAQ Composite fell 1.87 percent.1
In just six trading days, stock prices had undergone an extraordinary roller coaster ride on their way to a ten percent market correction. To illustrate just how wild the price swings were: the Dow Industrials traveled 22,000-plus points over the course of February’s first full week of trading.2
Single-day declines made for dramatic headlines, especially the 1,175 point drop on February 5th. But on a percentage basis (-4.6 percent), it wasn’t even among the top 20 all-time greatest daily declines.3
Stocks did not stay down for long, as prices rebounded in mid February to record their best one-week gain in five years. Corporate profits continued to surprise to the upside.
The rally continued until a late-February testimony by new Fed Chair Jerome Powell unsettled the markets, leaving investors with losses and perhaps a touch of vertigo.
Every industry sector in the S&P 500 Index closed the month with losses, led by Energy (-13.70 percent), Consumer Staples (-6.85 percent), and Health Care (-5.60 percent). Declines were also experienced in Consumer Discretionary (-2.17 percent), Financials (-3.66 percent), Industrials (-3.33 percent), Materials (-3.95 percent), Real Estate (-4.20 percent), Technology (-0.68 percent), and Utilities (-1.98 percent).1
What Investors May Be Talking About in April
Since the 2008 financial crisis, markets have operated in an environment of low interest rates, accommodative monetary policy, and modest economic growth.
The exceptional volatility experienced in February may signal the beginning of a different narrative, one in which the upward trajectory of interest rates may rouse inflation from its long hibernation.
Justified or Exaggerated?
To gain a clearer idea of whether inflationary fears are justified, some key financial and economic indicators may bear watching closely, including the 10-year Treasury Note and other economic reports.
Yields on 10-year treasuries are important since they serve as a benchmark for other interest rates, and are an indicator of overall investor confidence. Should the yield on the 10-year Treasury Note increase too much, too fast, it may become a drag on economic activity and draw money out of the equity markets.
With inflation at the forefront of investors’ concerns, the markets will be anxiously awaiting economic reports that provide clues to inflation’s path, with special attention paid to the Consumer Price Index, which gets released on March 13 and the Gross Domestic Product report, due on March 28. A strong GDP could spark inflation concerns.
Overseas markets moved in concert with domestic markets, with the MSCI-EAFE Index suffering a decline of 3.84 percent in February.5
European stock markets were broadly lower. While economic news and corporate earnings were generally positive, Germany and U.K. posted losses. Italy, on the eve of an election, declined more than five percent.6
Markets in the Pacific Rim also closed sharply lower, with Japan slipping 4.5 percent and Hong Kong losing 6.2 percent.7
Gross Domestic Product
The economic growth rate was revised downward, from its original estimate of 2.6 percent to 2.5 percent. This expansion rate, while slower than the two previous quarters, represents an improvement over 2016’s fourth-quarter growth rate of 1.8 percent.8
Employers added 200,000 jobs in January, keeping the unemployment rate at 4.1 percent -- the lowest level in 17 years. Wage growth turned higher, increasing 2.9 percent over the last year, the biggest jump in pay since June 2009.9
Retail sales declined 0.3 percent -- the largest drop in 11 months. Despite the pullback, sales in January were higher by 3.6 percent compared to the same time last year.10
Output by factories, mines and utilities fell for the time since the summer, shrinking 0.1 percent.11
Housing starts bounded 9.7 percent higher from the previous month, despite an exceptionally cold January across most of the country. This was the third monthly increase in the last four months.12
Sales of new homes did not fare as well, falling 7.8 percent -- the fourth time in the past six months that new home sales have declined.13
Sales of existing homes fell by 3.2 percent from the prior month, and declined 4.8 percent from January 2017, representing the biggest drop since August 2014.14
Consumer Price Index
Prices for consumer goods rose 0.5 percent in January, though core inflation (excluding the more volatile food and energy components) increased by a modest 0.3 percent. For the last twelve months, prices have jumped 2.1 percent, while wage growth softened.15
Durable Goods Orders
Orders for durable goods dropped 3.7 percent, dragged down by a 10 percent decline in transportation equipment.16
Minutes of the Fed’s January meeting indicated a consensus among members that the economy was set to grow at a faster pace than they had anticipated since the last time they met, reinforcing their plans for steadily increasing rates.
The next Fed meeting is set for March 20-21, the first to be chaired by new Fed Chairman Jerome Powell.17
By the Numbers
Daylight Saving Time
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
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1. The Wall Street Journal, February 28, 2018
2. CNBC.com, February 8, 2018
3. Investor’s Business Daily, February 5, 2018
4. Interactive Data Managed Solutions, February 28, 2018
5. MSCI.com, February 28, 2018
6. MSCI.com, February 28, 2018
7. MSCI.com, February 28, 2018
8. The Wall Street Journal, February 28, 2018
9. The Wall Street Journal, February 2, 2018
10. The Wall Street Journal, February 14, 2018
11. The Wall Street Journal, February 15, 2018
12. The Wall Street Journal, February 16, 2018
13. The Wall Street Journal, February 26 2018
14. The Wall Street Journal, February 21, 2018
15. The Wall Street Journal, February 14, 2018
16. The Wall Street Journal, February 27, 2018
17. The Wall Street Journal, February 21, 2018
18. Timeanddate.com, 2018
19. Cars.USNews.com, March 9, 2017
20. CNN.com, October 18, 2017
21. News.com, March 10, 2017
22. WFLA.com, February 14, 2018
23. History.com, 2018
24. WashingtonPost.com, November 4, 2017
25. AccuWeather.com, February 15, 2018