More Market Volatility
April 6, 2018
Regarding the stock market; the market correction we are now experiencing is pressuring investor confidence. Given the observation that the current correction has been in place for some nine weeks now and given that the average correction lasts approximately 18 weeks, we should remain in a corrective phase for another nine to eleven (the 9+11 sum; a Fibonacci number) weeks. In the meantime, what’s going on?
Well, the market was priced for perfection. According to Richard Fisher, former Federal Reserve Board member, there have been 31 ten-percent market corrections since World War II and nine twenty-percent or greater corrections since 1957. So now, after nine years of lower than normal volatility and stock prices grinding higher, the stock market is experiencing historically normal volatility. The cross currents of the transition away from low borrowing costs and toward lower taxes is being met with skepticism. Investors are pricing stocks using lower price-to-earnings estimates for fear of inflation.
Yet, inflation is still below Federal Reserve Board targets. The bond market concurs. Is this fear of inflation overblown? When testing the lower end of the trading range; markets often react as if good news is bad and bad news is terrible. So, that’s where we are just now. Many stocks are beginning to reach our buy targets again; however, as of this writing we are comfortable holding our large cash positions for bigger fish.
So, while Credit Suisse analysts continue to report that their year-end price target for the S&P 500 is 3000, some 15% above current levels, I must report that the expansion of volatility in the equity markets caused accounts to underperform during the first quarter of 2018. Moreover, in order to mitigate downside risk, our higher than usual holdings of cash will likely cause portfolios to underperform on positive days and outperform on down days. This is prudent short-term management, with an emphasis on short-term. Clearly once it becomes apparent the correction is largely behind us we shall expand our risk taking.
Enclosed, you will find your quarterly and one-year trailing performance data and a composition summary of your account as of March 31st, 2018. Do let me know if you have questions. It remains an honor to serve you. Money management is our core competency. Thank you for your trust and referrals.
Vaughn Woods CFP, MBA
Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter may not reflect the views of Bolton Global Capital or Bolton Global Asset Management. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0227