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market spotlight | monthly review

Equities pulled back off of their record-setting gains at the end of January, but not enough to forestall a month of significant gains. January provided several noteworthy storylines for investors to consider. Unemployment remained low as the number of available job openings continued to recede, possibly signaling a push for higher wages. Fourth-quarter corporate earnings were relatively strong. The president’s first State of the Union address preached optimism and called for bipartisan cooperation on major economic and international issues. The government shut down for a few days before approving a stopgap budget resolution through early February. Some American workers saw a modest bump in pay, courtesy of the Tax Cuts and Jobs Act legislation passed in December. And Janet Yellen’s final meeting as chair of the Federal Reserve saw the Committee maintain interest rates at their year-end level.

The month started on a strong note as the Dow soared past 25000, ultimately reaching 26000 mid-month. The S&P 500 closed the first week of January up 2.6% and continued to post positive weekly gains through the month, ultimately gaining over 5.5%. The tech-heavy Nasdaq picked up in 2018 where it left off in 2017, gaining 7.36% by the end of January. Both the Global Dow and the small caps of the Russell 2000 enjoyed positive monthly returns, closing up 5.84% and 2.57%, respectively.

did you know?

Volatility is becoming the new normal in the equity markets. While the markets have broken record after record in recent months, with the Dow Jones climbing above 26,000 and S&P 500 clearing 2,800, that growth has also translated into incredible one-day and intraday drops, including:

  • On Feb. 5 the Dow was off more than 1,500 points briefly, a new intraday record
  • The VIX volatility index, a measure of market turbulence, skyrocketed 116% on Feb. 5, it’s highest level since 2015
  • At one point in 2018, the S&P 500 had lost $5.2 trillion in global markets

Sources: MarketWatch, Dow Jones Industrial Average, S&P 500, CNBC

bright ideas
Best Compliance Practices Amid Volatile Markets: How to Document and Handle Client Portfolios During Massive Market Swings

We’re living in volatile times. On Monday, February 5, the S&P 500 dropped 4.1 percent, the biggest one-day decline since 2011. The Dow also spun wildly, falling nearly 1,600 points before closing down 1,175 for the day. But the extreme drop was not a one-day occurrence. Over a two-week period, the S&P 500 lost nearly $2.5 trillion in value, with nearly half its sectors down more than 10 percent.

Two of the sectors-energy (-14.04%) and healthcare (-11.69%)-moved well into correction territory while others teetered right on the edge. All this whipsaw activity generated some panic within financial circles, causing many advisors to question the best way they should manage their accounts.

Flexibility & Control

At Beacon, we help eliminate the uncertainty of this extreme market volatility by offering our advisors a unique investment platform designed specifically for today’s market conditions, including:

1) Mechanical, stop-loss protection Don’t let recent market volatility make you or your clients forget our guiding principles! Each of our Vantage portfolios offers a mechanical stop-loss protection that removes emotion from the equation and provides a scientific, research-based approach to limit losses before they become destructive. This includes an automatic stop-loss trigger to move equities to fixed income when our internal Vantage Benchmark Index drops 10 percent from its high. For more resources on how we are redefining risk by maximizing diversification, minimizing losses and maintaining discipline, view and share our videos on these topics available on our website with your clients and prospects.

2) Blended portfolio design Through our series of Vantage portfolios, we offer a range of flexibility for you to design your portfolios, including sector-only stop loss, total equity stop-loss or a mix of the two in a range of risk profiles. Each of our models works to complement the others so they can be layered together to suit your management preferences and needs.

3) Override flexibility As described above, Beacon portfolios are designed to help remove the questions of when to buy and when to sell guided purely by research and predetermined parameters. However, we also respect your need to make updates to your portfolios as you see fit for your individual clients. Whether you view recent volatility to be a temporary response to interest rate movements or the beginning of a correction, you are able to make updates to your holdings at any time, as long as you have the proper documentation in place.

Documenting in the Client’s Best Interest

Although the Department of Labor’s Fiduciary Rule went into effect on June 9 of last year, an additional eighteen-month delay in its enforcement went into effect on January 1, 2018. One thing advisors still do need to adhere to, even during the eighteen-month transition period, is the impartial conduct standards portion of the best interest contract.

The key piece to keep in mind here is that advisors need to justify and document any changes they make in a client’s portfolio. For example, take into account the following scenario: What if we encounter another volatile slide in the market? And, what if the slide dips below the 10 percent trigger point? If an advisor chooses not to make that change into fixed income, as had been previously agreed upon, then the advisor will have to document why that recommendation-from model A to model B-was in the best interest of the client.

It’s in the advisors’ best interest, and for their own protection, to document why these changes were made to a client’s account. According to the DOL ruling, although the BIC is not being enforced at this point, there’s the potential for cases to be reviewed retroactively.

To learn more about compliance and best practices amid volatile markets, contact your wholesaler today!

beacon news

Be sure to visit Beacon’s News & Press page for the latest credibility pieces to share with your clients and prospects, and follow Beacon on LinkedIn for the latest updates as they happen.

Check out Chris Cook’s recent contributing article on Investopedia “Protect Your Investments with a Stop-Loss Plan.”

Also, a reminder to all RIAs with a fiscal year ending December 31, don’t forget your filing deadlines approaching March 31! See our past issue on this topic for more insight on the changes this year.



Beacon Capital Management, Inc. is an investment advisory firm registered with the Securities and Exchange Commission. Additional information about Beacon Capital Management is also available on the SEC’s website at under CRD number 120641. Beacon Capital Management only transacts business in states where it is properly registered, or excluded or exempted from registration requirements.

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