Market Commentary, 04/04/18
Even though the stock market closed up last week, with the Dow gaining 2.4% and the S&P 1.7% both indices were down for the quarter for the first in over two years. (Source: John Hancock)
The volatility that started in early February has continued this week; on Monday the Dow closed down 459 at 23,644 (–1.9%), the S&P closed down 2.2% and both were down over 3% intraday. Yesterday (Tuesday, 04/04/18) the market reversed course … the Dow closed up 389 points at 24,033 (+1.6%) and the S&P was +1.3%. Today witnessed one of the largest one-day swings in history as the Dow opened down 510 and closed up 230. In fact, historically, this is the first time the Dow has finished in positive territory after being down over 500 points.
International trade concerns seem to be the leading cause of market volatility. Last week President Trump announced a tariff on $60 billion of Chinese goods … then, over the weekend China announced tariffs on $3 billion in US exports including fruit, pork and steel pipes. As of now the U.S. hasn’t said which products may be subject to tariffs but it is expected that the theft of intellectual property will be punished.
Additionally, there are concerns about North American Free Trade Agreement (NAFTA) negotiations as the President has threatened to tie border security to passage of the agreement. It should be noted that NAFTA benefits Mexico more than America; in fact, the agreement accounts for a third of Mexico’s economy and only 3% of ours. However, despite this inequity, U.S. companies invested nearly $100 million in Mexico, over the last several years, while Mexican companies only invested around $20 million in America. (Source: Forbes)
Also, some individual stocks, specifically in the tech sector (e,g, Facebook and Amazon), have been especially volatile.
The bottom line is: Now is not the time to cut and run, despite the market’s current kneejerk reactions. If we thought this was the beginning of a long or even intermediate-term bear market, we would have already started selling stocks; however, market conditions and economic dynamics are still favorable.
As an aside, a factor in the current volatility could be President Trump’s negotiation modus operandi. Paraphrasing from his book The Art of the Deal: You should always ask for more than you expect to receive and promise less than you plan to give and while this may be a good mantra in business, it creates uncertainty in the market, which leads to increased volatility.
Wayne Copelin, CFP®
President, Copelin Financial Advisors, Inc.
514 Brooks Street
Sugar Land, TX 77478
Phone (281) 240-2902
Fax: (281) 240-2856
Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc