Last Friday’s market decline culminated the worst week for stocks in two years and the worst single day since Brexit. The market accelerated its decline yesterday with an intra-day drop of almost 1,600 points on the Dow, before closing on the day off 1,175 points. On a percentage basis the Dow and S&P 500 were down for the day 4.7% and 4.1%, respectively. The combination of today’s selloff and last week’s market decline leaves all of the major indices (see table below) down over 7% since the recent highs on January 26. While the last six trading days have erased the gains earned in the first 19 trading days of 2018, it is important to realize that since the beginning of year the major equity market indices have been on a near vertical tear. It is also important to remember that these same indices are up anywhere from 13-27% over the past 12 months
Notwithstanding the fact that prior to January 2018 the equity markets were up for 13 consecutive months and measures of market volatility have been near record lows for months and months, the past six trading days are a stark reminder that equity markets do go down. We do not think the world is coming to an end, in fact, for the first time in years we have been experiencing synchronized global economic growth. However, there remain numerous challenges including interest rate normalization and the unwinding of global central bank balance sheets. Some of these issues have never been dealt with before and it’s hard to know how the markets will react. Accordingly, one should expect increased volatility in the financial markets.
The current economic and financial conditions have been evolving for several years and we have sought to mitigate market risks by diversifying portfolios with non-correlated assets and regular rebalancing when appropriate. We continue to monitor the markets carefully to assess if further changes are warranted and will communicate our findings on a regular basis. We welcome your questions, comments, and observations at any time and appreciate your continued confidence in our efforts on your behalf.