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!