The Market in Perspective (5/14/2018)

In looking at the investment markets for the year, thus far, volatility is an important factor. The stock market, as measured using the S&P 500, began the year at 2674. It proceeded to go up to 2873 by early February, a gain of 7.4%. Most investors were very happy thinking that 2018 would be a continuation of the rapid increases from 2017. This was not to be the case.

The market began a decent to a low point in March of 2581. The difference, from the high point of the year to this low point, was a loss in value of 10.1%. This change in value is known, in stock market parlance, as a correction. It generally means that the increase in market values were too rapid. From the low point of the market, in March to the end of April, the S&P 500 rose back to 2648 or 2.6%.  Overall, the market at the end of April was down about 1% from where it began at the beginning of the year. As of the opening on May 14, 2018, the S&P 500 is now up 2% year to date. These changes are difficult to put into perspective since most investors tend to remember the high point and use that as the new benchmark. If we use the high point of the market of 2873, even with the current value of 2728, the market is down from its record high by 5%.

As long-term investors, we must be careful of our short-term perspective. Certainly, the first four months of this year have shown us a high level of volatility, compared with last year. An important component of investment markets are bonds. As the economy has accelerated, the cost of borrowing has been going up. Whether you are obtaining a mortgage, selling a corporate bond or a municipality financing some project, the cost to borrow money is higher than at the beginning of the year. As interest rates go up the value of existing bonds go down in value, to affect a yield like new financing taking place. Bond markets have been negative this year but they too have had volatility. The 10 Year Treasury, which is a benchmark bond, has gone from 2.41%, at the beginning of the year, to a high of 3.03% and is now back down to 2.97% (when interest rates go down the value of the bond goes up).  

A Wall Street commentator and investor, Marty Zweig, used to say, “The Trend is your friend.” For now, at least, the trend seems a bit friendlier.

Ed Mallon

May 14, 2018