February Begins with Wild Swings
The first few trading days of February saw a jolting pullback after January’s sizeable move. We have been fortunate to have not experienced a sudden surprise of this magnitude since August of 2015, which lends perspective to just how long the rally had sustained itself.
The beginning of the year saw an unprecedented run, and one which ultimately could not be sustained. Financial analysts refer to this type of market pullback as a “correction,” which is another way of saying that the markets overextended themselves. It is not healthy or normal for the markets to go straight up or straight down. Along the way, some selling (or buying in down markets) will occur and buck the trend and a correction can lead to a less speculative investment climate. (1)
The good news… The U.S. economy’s fundamentals are still strong, even as Wall Street worries that rising interest rates may make fixed-income investments more attractive and inflation may be on the rise. (2,3)
The Markets in January
Prior to the recent pullback, the markets exceeded all expectations during the historically sluggish month of January. As the month neared an end, it seemed that no one wanted to miss out on such amazing gains and many were running to direct money into equities. Real estate saw a decline with the typically slow winter month, with resales slumping 3.6%. Mortgage rates climbed steadily in January, adding to affordability concerns and making some real estate analysts wonder if home prices might level off a bit. (1,2,3)
February might be a month of ups and downs which may give investors pause while the bull market is being challenged. However, the primary two factors which often contribute to stopping an upward-trending market are the downside of a business cycle and rapid tightening by the Federal Reserve, and neither appear to be in the short-term future.
As always, we are keeping abreast with the ever-changing market conditions. Just remember that one day, one week, or one month does not define a trend. Seasoned investors will ride through the volatility and keep an eye on the big picture.
1 - investing.com/economic-calendar/ [1/31/18]
2 - freddiemac.com/pmms/ [1/31/18]
3 - freddiemac.com/pmms/archive.html?year=2017 [1/31/18]
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.