A Note from Our CIO - Q2 2018
We have been counselling our clients to try to ignore politics and geopolitics when they consider their investment strategy. Instead, we have said, pay attention to the fundamentals, the strong economy, and impressive corporate earnings.
That was harder to do in the first quarter. We saw more downside volatility than in all of 2017, with a full 10% correction taking place in late January into early February. More recently, we all were reacquainted with the term “tariffs.” It was impossible to ignore the ensuing stock market volatility or the diplomatic posturing between the United States and China.
We still counsel patience. A trade war with China is certainly a potential outcome, but it is one that may never materialize—it is more likely that cooler heads will prevail and that the participants will realize the risk of disrupting highly integrated global supply chains and economies. More significantly, perhaps, the stock market is adjusting to a changing interest rate environment and a new tax regime. Another issue could be the installation of new Federal Reserve Chairman Jerome Powell in February. A choppy stock market is common in the early days of a new Fed Chair’s term—we saw similar events with both Bernanke and Yellen.
Our economic and market indicators continue to provide positive signals. The most significant concern we have is that the Federal Reserve could act too aggressively in its rate hiking efforts. We do not see any indication of a recession in the next 12-18 months. Accordingly, we encourage investors to maintain their long-term investment strategy. As always, please consult with you advisor should your personal situation change.
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