March's Market Noise Continues

Equities (i.e., stocks)

The stock market volatility we saw in early February persisted through March – and has now continued into the start of April. Since the S&P 500 peaked on January 26, the index moved at least 1% on a daily basis on half of the 43 trading days through the end of March.

To quote Michael Gibbs, Raymond James Managing Director of Equity Portfolio & Technical Strategy, “This … is a far cry from the calm seen in 2017, when the S&P 500 produced a 32‐year volatility low with only eight days with moves of at least 1% for the full year.”

However, a healthy backdrop for the U.S. equity markets exists amid all the recent market noise and U.S. economic conditions remain quite healthy. In a recent Federal Open Market Committee (FOMC) press release, the Fed highlighted the strengthening of their economic outlook. Growth in the remainder of the year is expected to be relatively strong, with an unclear impact from fiscal stimulus such as corporate tax cuts and increased spending.

Beyond 2018, the Fed also expects inflation to drift gradually higher as it anticipates the unemployment rate falling to nearly a full percentage point below what it considers a long‐term sustainable level by 2019 and 2020. Concerns regarding future inflation create some current volatility. Tariff decisions, along with potential retaliation, have also created current volatility. The financial markets have responded to trading decisions with one‐step back then one‐step forward.

Overall, however, given the strong economic and earnings backdrop, we believe that stock market pullbacks should be viewed opportunistically – an opportunity to potentially “buy low.”

Fixed Income (i.e., bonds)

Interest rate increases have caused a modest pullback in the principal value of some bonds. This type of pullback is typical in a rising rate environment. Note that, where suitable, we have positioned bond portfolios defensively, overweighting shorter‐term bonds and other categories which are less impacted by rising interest rates.

 
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Dow Jones Industrial Average: The Dow Jones Industrial Average is a composite of 30 stocks spread among a wide variety of industries, such as financial services, industrials, consumer services, technology, health care, oil & gas, consumer goods, telecommunications, and basic materials. The index represents approximately 23.8% of the U.S. market, and is price weighted (component weightings are affected by changes in the stocks’ prices). 

MSCI EAFE (Europe, Australasia, Far East) Index: A free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2, 2014, the index consists of 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 

Bloomberg Barclays Aggregate Bond: A representation of SEC‐registered, taxable, and dollar denominated securities. The index covers the U.S. investment grade fixed rate bond market, with index components for asset‐backed securities, government and corporate securities, and mortgage pass‐through securities. Must be rated investment grade (Baa3/BBB‐ or higher) by at least two of the following rating agencies: Moody’s, S&P, Fitch; regardless of call features have at least one year to final maturity and have an outstanding par value amount of at least $250 million. 

All data from Raymond James Financial.