Markets, Economy

Weekly Kickstart (10/15/2018-10/19/2018)

10/15/18 8:00 AM

iStock-626627280.jpgThe market correction intensified last week, as the S&P 500 fell by 4.10 percent to 2,767.13. That was the largest decline since March, but it still left the benchmark index up 3.50 percent year-to-date, and just 5.58 percent below the record close. Most of the damage was done on Wednesday, when the S&P 500 plunged by 3.29 percent, its biggest 1-day drop since February. The rapid speed at which equities were able to fall suggests that many investors were caught off guard by the selloff, even though the issues that will be blamed for the decline have been known for quite some time, e.g. rising interest rates, a looming trade war, and the upcoming midterm elections. Moreover, the CBOE’s VIX volatility index, often referred to as “investors’ fear gauge,” spiked to an 8-month high on Thursday, and only 30.6 percent of traders surveyed by AAII said that they expect stocks will rise in value over the next six months.


Clearly last week’s price action was scary for many market participants, but it is important to remember that pullbacks are actually a somewhat normal occurrence. For example, there have been 19 single-day declines of at least 3 percent in the S&P 500 since the bear market officially ended in 2009 (not counting last Wednesday’s drop). Each one of those selloffs might have felt like the end of the world at the time but the benchmark index repeatedly recouped its losses and climbed to a new all-time high. Further, the S&P 500 since 1980 has experienced an average intra-year drawdown of 13.8 percent but still ended with a positive annual return for 29 of those past 38 years. Although such statistics should be reassuring, there are still enough potential near-term headwinds for the markets to keep the day-to-day fluctuations in equity valuations large enough to cause some concern among retail investors. Any individuals worried about navigating this environment should consider consulting with a professional financial advisor and 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 household inflation pressures moderated, real average hourly earnings growth accelerated, and first-time claims for unemployment benefits held near a half-century low. As for the negatives, mortgage applications fell, the 30-year mortgage rate surged to a 7-year high, measures of consumer and small business owner optimism cooled, and both wholesale and trade-related inflation pressures increased. This week the pace of economic data picks up slightly, with a few important reports on manufacturing, housing, employment, and retail sales scheduled to be released, along with the potentially market-moving minutes from September’s Federal Open Market Committee (FOMC) meeting due out on Wednesday.


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

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Sources: Econoday, AAII, Twitter, Bloomberg, J.P. Morgan, FRBSL

Post author: Charles Couch