A bit over a month ago, I posted an article about market volatility. In it I reminded you that periods of low volatility won’t last forever and that a 5% pullback, or even a 10% correction, would not surprise me. Well, welcome to some newfound volatility and an 8% pullback (perhaps more to come). Markets tend to move down a lot faster than they move up, so several days of triple-digit declines brings back uncomfortable feelings for all of us. But let me remind you that we haven’t had a 3% move lower since the election 14 months ago, so we’re overdue.
Nothing has changed (in the broader economy) over the last week…interest rates moved a bit higher and we saw wages move up as well. I think traders used those bits of news to start the ball rolling and now the markets are moving without much regard to fundamentals (that’s not a new phenomenon either). If we focus on corporate profitability and expectations for growth in profitability over the coming year, then things look pretty much like they did a week ago. And while the market may have gotten ahead of itself (up 7% in January), the recent volatility doesn’t change the basic story that corporate profits are likely to rise over the coming year and the market should follow it up.
If you have questions or would like to talk, please let me know. Otherwise, sit tight and know that I’ll get in touch if something materially changes in this outlook.
