Weekly market update
What a month it has been! We have seen some of the most sensational moves in the markets. The moves down and up have been like Charlie Daniel’s elbow. The correction we have gone through should come as no surprise after the rally we have seen over the last 14 months. Everyone knew it was coming, they just didn’t know when or how severe. And severe it was – the S&P 500 fell 11% from the January highs. Two weeks ago, we went through the worst week in two years – only to turn around last week and have our best week in 5 years. I switched out morning coffee for Dramamine.
So – what in the world has been going on?
Recall two weeks ago I pointed out that the markets freaked out after a stellar jobs report. It wasn’t so much that the new jobs created shocked the world – it was what traders and investors saw in the wage growth which on the surface grew at the fastest pace since 2009 – BUT – average hours work fell. So despite the “fastest wage growth”, actual pay went down – that’s right – down. But, that is not what the algorithmic trading programs read – they read “fastest wage growth” – which they interpreted as “inflation” and they couldn’t sell fast enough. And from there it was off to the races. At one point in the last two weeks, we saw the Dow dropping in 100 point increments – HOLY SMOKES!!!
Then, two Fridays ago, the S&P 500 bounced off its 200-day moving average and began a face-ripping rally. We bounced off 2546ish on the S&P 500 and ended this past Friday at 2732. Did I mention the Dramamine?
So, back to inflation – we did see the CPI come in a little higher than analysts expected, but retail sales fell. And for many – the “S” word came to mind – stagflation. Consumers are buying less and paying more. Combine that with the fact that paychecks went “down”, as I mentioned earlier, and that my friends “could” be an ugly situation. Imagine a scenario where we see a sinking economy and runaway inflation.
BUT – for now – we don’t see a sinking economy or runaway inflation. Unemployment is running at multi-decade lows, the economy is clicking on most cylinders and earnings from companies are the best in years. We will keep an eye on inflation because inflation can be a real confidence killer “IF” the economy was to take a sharp downturn, but right now we are not seeing that at all.
So, take your Dramamine and strap in as I don’t expect we have seen the last of this type of volatility…
Stay tuned and we’ll keep you posted, and as a reminder – we encourage your questions and comments, but most importantly – your concerns. So do not hesitate to let us know.
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
February 19, 2018
