Happy New Year!
While the global equity markets enjoyed one of their best and smoothest years in 2017, 2018 offered a different story bookended by early-and-late year volatility. The year told a tale of trade conflicts with China, geopolitical tensions, government shutdowns, higher interest rates, and signs of slower economic growth. This is the first year in nearly a decade in which most major asset classes will end in negative territory. While there were plenty of events, these events were largely predictable and don’t seem, in retrospect, to be enough to explain the stock market slide that occurred. More likely, the size of the decline reflects the growth of momentum trading, robots, hedge fund liquidations, tax loss selling, and the impact of thin trading around the holidays.
It’s natural for times of market volatility to bring up feelings of apprehension and uncertainty.
Thankfully, those of us who study the markets know that pullbacks and corrections are necessary to sustain a healthy market and that, over time, the market has experienced positive growth. In fact, over the last 85 years, the S&P 500 has been positive over five-year rolling periods 86%* of the time.
Strategies for a market correction:
- Have perspective and keep a long-term perspective
- Volatility in 1-year increments can be very high
- Taking a long-term view provides a high probability of success
- Add to retirement plans (accounts), dollar-cost averaging
- 2019 Contribution Limits
- Roth IRA & IRA: $6,000 or $7,000
- 401(k) & 403 (b): $19,000 or $25,000
- Review holdings, weed out those you no longer want to hold, and upgrade
- Rebalance the portfolio, stay diversified
- Raise some cash
- Reassess Risk
A few expectations for 2019:
- We believe the market will need to rebuild a bottom from which to move higher, which will take some time to do, expect more volatility in the near term
- Economic growth, GDP, will slow from 2018 level but stay positive
- Corporate earnings growth projected to be 5-6%
- The Fed may or may not raise interest rates, help alleviate pressure on fixed income
- Raymond James Base Case Scenario suggest a level on the S&P 500 of 2957, well above today’s levels. This scenario does require that some things go right, like a trade deal with China & no recession.
Having concerns when volatility affects your portfolio is normal. But this is why we emphasize the importance of a financial plan, one that accounts for the occasional moods of the market while making strides toward your long-term financial goals. Over time, notable dips such as these should feel like mere bumps in the road to fulfilling your objectives.
As your advisory team, we’re here to provide you not only with insight, but with advice on how we can help manage the effects of – and capitalize upon – the markets’ movements. Please feel free to get in touch if you’d like additional perspective or guidance.
On behalf of the FIS we wish you a Happy 2019 and we thank you for the trust you place in us.
Any opinions are those of Forman Investment Services and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All investing involves risks, including the possible loss of principal amount invested. No investment strategy can guarantee your objectives will be met.
Raymond James Base Case scenario source: https://www.raymondjames.com/pdfs/share/weekly_market_guide.pdf
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance is not indicative of future results. Asset allocation and diversification do not ensure a profit or protect against a loss.
Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.