The market melt-up came to a sudden halt last week, as the S&P 500 fell by 3.85 percent to 2,762.13, the largest decline in two years. For some the sharp selloff was not too surprising following the best January for equities since 1997 and the strange behavior observed in the CBOE’s VIX volatility index mentioned in the previous Weekly Kickstart. There are several potential excuses for the profit taking seen during the past few trading sessions. For example, bond yields have been surging recently, and the hawkish rhetoric from the Federal Reserve has picked up, i.e. a handful of officials in speeches have mentioned inflation as a growing concern. Many market participants interpret all of this as meaning interest rates will rise faster than anticipated, which is typically viewed as a negative for equities.
Regardless, even after last week’s big decline the benchmark index is still up 3.31 percent year-to-date, and just 3.85 percent below the all-time closing high. Moreover, as scary as Friday’s price action might have been, it is important for investors to remember that selloffs in the market are far from uncommon. In fact, the S&P 500 since 1980 has experienced an average intra-year drawdown of 13.8 percent but still posted a positive annual return for 29 of the past 38 years. It is even possible to capitalize on some pullbacks in the market, especially for investors that are consistent participants in a tax-advantaged 401(k) plan, utilize dollar-cost averaging, and regularly consult with a professional financial advisor. As always, we are here to help with any questions you may have.
To recap a few of the things we learned about the economy last week, the positives included that pending home sales increased, construction investment improved, consumer confidence rose, household inflation pressures remained muted, the unemployment rate matched the cycle low, wage growth accelerated, and nonfarm employment in America rose by more than forecast. As for the negatives, various gauges of manufacturing activity continued to send mixed signals, corporate layoffs picked up, small business job creation moderated, and productivity declined for the first time in two years. This week the pace of economic data slows down but there are still several important reports on services sector activity, consumers, and employment scheduled to be released.
**A more detailed snapshot of the U.S. economy can be found here.**
What To Watch:
- International Trade 8:30 AM ET
- James Bullard Speaks 8:50 AM ET
- JOLTS 10:00 AM ET
- 3-Yr Note Auction 1:00 PM ET
- MBA Mortgage Applications 7:00 AM ET
- William Dudley Speaks 8:30 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- Charles Evans Speaks 11:15 AM ET
- 10-Yr Note Auction 1:00 PM ET
- Consumer Credit 3:00 PM ET
- John Williams Speaks 5:20 PM ET
- Robert Kaplan Speaks 4:50 AM ET
- Jobless Claims 8:30 AM ET
- Neel Kashkari Speaks 9:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- 30-Yr Bond Auction 1:00 PM ET
- Esther George Speaks 9:00 PM ET
Sources: Econoday, Bloomberg, J.P. Moran, Pension Partners, FRBSL
Post author: Charles Couch