QUARTERLY MARKET COMMENTARY : First Quarter 2018
John Pierpont Morgan, best known today from the bank that bears his name, was one of the most important financiers of the late nineteenth and early twentieth centuries. Due to his influence, he was regularly asked for his opinion on what was in store for the stock market. Short-term market movements are notoriously difficult to predict, so Mr. Morgan resorted to a pithy yet proper response – “It will fluctuate.” True indeed, especially for the 1st quarter of this year, which has been characterized by quite a bit of fluctuation. Already there have been 23 days in which the S&P 500 moved greater than one percent, compared to just eight such days in all of 2017. Also, stocks experienced their first 10 percent correction since February 2016. On average, declines of that magnitude happen nearly once a year. It has been an uncomfortable start to be sure, but given that 2017 set records for its lack of volatility, 2018’s market action may be better described as a return to normalcy, rather than an omen of something more sinister to come. Volatile markets typically don’t turn into prolonged bear markets absent material economic weakness, which we don’t believe is currently the case.