Despite some positive economic signs, rising consumer confidence, and favorable corporate earnings reports, February marked the end of the 10-month winning streak for the benchmark indexes listed here. Concerns over rising inflation and interest rates triggered a notable sell-off early in the month and pushed volatility to the forefront. Although the indexes listed here recovered much of their early February losses to close the month ahead of their 2017 closing values (with the exception of the Russell 2000), stocks did not maintain the pace set last year into January. New Fed chair Jerome Powell’s bullish assessment of the economy last week pushed the yields on 10-year Treasuries to their highest rates in several years (bond yields rise as prices fall), giving investors more reason to believe multiple interest rate hikes are in the offing for 2018.

The month started slowly as the Dow dropped over 4.0%, while the Nasdaq, S&P 500, Russell 2000, and Global Dow each fell over 3.0%. Despite a partial recovery mid-month, it was not enough to push stocks past their January closing values. The Global Dow and the Dow each plummeted more than 4.0% month-over-month, followed by the Russell 2000 and the S&P 500. The Nasdaq lost almost 2.0%, yet remained far ahead of the remaining listed indexes year-to-date. Overall, February was the worst month for the large caps of the Dow and S&P 500 since January 2016.

By the close of trading on February 28, the price of crude oil (WTI) was $61.55 per barrel, down from the January 31 price of $64.77 per barrel. The national average retail regular gasoline price was $2.548 per gallon on February 26, down from the January 29, 2017, selling price of $2.607 but $0.234 more than a year ago. The price of gold decreased by the end of February, closing at $1,319.40 on the last trading day of the month, down from its price of $1,348.50 on January 31, 2017.

Another day, another extreme market swing. On Thursday, March 1, President Donald Trump announced the U.S. would enact tariffs of 25 percent on steel and 10 percent on aluminum imports. The equity markets responded to the news with huge selloffs. The Dow Jones Industrial Average closed down 420.22 points for the day, a 1.7 percent drop; the S&P 500 was off 1.4 percent, wiping out all of its gains year-to-date; and, the Nasdaq composite dropped 1.3 percent, falling below its 50-day moving average.

Throughout the day, as analysts appeared on CNBC and Bloomberg and other news outlets, a common theme rang out—investors are spooked. On that day, they were spooked by the idea of a global trade war. But that’s not the only thing spooking investors.

The Fear of the Unknown

They’re also worried about the Fed raising rates. The benchmark fed fund rates have been raised five times since 2015, but they still sit at an incredibly low 1.5 percent. Adding to the worry, the question of how aggressively will they go up with Jerome Powell taking over for Janet Yellen as Federal Reserve Chair. We got comfortable with Yellen in there; we knew what to expect. With Powell, there’s more of an unknown on how he will handle the levers of raising rates. He signaled a hawkish tone to Congress when he shared on Feb. 27 that he might hike rates more than three times this year in efforts to keep the economy from overheating. That news dropped the Dow 299.24 points.

The Fear of the Bull’s End

Another major event that has investors spooked is the historic bull run we’ve been experiencing. The bull market, which began March 9, 2009, is the second longest and fourth strongest in history, according to S&P 500 data. That’s good news, right? Yes and no. At Beacon, we believe the market is getting a little long in the tooth. It’s been going up for so long and, yes, people have a lot of profits built in, but that’s putting investors on edge. It’s got them spooked because they want to realize their profits, but they don’t want to be the last ones standing if and when the bull run ends.

An Antidote to Volatility

As volatile markets continue, maintain focus on the investment fundamentals of Beacon portfolios that were specifically established to perform in these market conditions. Throughout 2017 at Beacon, we lagged the market a bit, but that’s okay. We have our portfolios equally weighted among the sectors, so there will be a lag on the upside, but this diversification is our first line of defense against severe downturns and overweight sectors prone to bubble bursts. To further withstand a volatile marketplace, we offer portfolios designed to capture upside gains, but also to protect against today’s unpredictable markets through stop-loss protections. Lastly, remember the flexibility both through blended portfolio designs and autonomy options available to serve your client needs that were shared in last month’s newsletter.

To learn more about how to calm the fears of your clients and maintain order amid the chaotic marketplace, contact your wholesaler today!