Markets, Economy

Weekly Kickstart (02/12/2018-02/16/2018)

2/12/18 8:00 AM

/iStock-672426462.jpgThe market correction intensified last week, as the S&P 500 fell by 5.16 percent to 2,619.55. That was the largest weekly decline for the benchmark index since January 2016, and included Monday’s 4.10 percent plunge, the worst day for stocks since the August 2011 downgrade of America’s debt rating. For many traders the sharp selloff was to be expected after the market melt-up accelerated at the start of 2018, with a record $78 billion pouring into U.S.-listed ETFs in January, according to State Street Global Advisors. Further, the “euphoric exuberance” in the market also encouraged rapid growth in the number of short-volatility bets, not surprising since this strategy performed extremely well in 2017, one of the most tranquil years for equities on record.


However, short-volatility trades typically utilize leverage, meaning that even a small pullback in the market can trigger a flood of additional selling. That is probably what exacerbated the latest drawdown, and relief rallies may be attempted after the bulk of the short-volatility trades are unwound. Whether a bottom in the market is actually in, though, is unknown, especially as the threats of rising inflation (faster rate hikes) and other potential headwinds remain. Regardless, volatility could stay elevated for the near-future, which is why retirement investors should focus more on the long-term and remember that “time in the market is more important than timing the market.” Additional assistance is available 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 mortgage and refinance applications rose, services sector activity firmed, initial jobless claims continued to hover near a multi-decade low, and the quits ratio (a gauge of Americans’ confidence in the labor market) improved. As for the negatives, the nation’s trade deficit widened, consumer credit growth slowed, and the number of job openings in America declined to a 7-month low. This week the pace of economic data picks up slightly, with still several important reports on manufacturing, housing, consumers, inflation, and small business scheduled to be released.


**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:


  • Nothing significant







Sources: Econoday, SSGA, Bloomberg, J.P. Morgan, FRBSL

Post author: Charles Couch