23 Mar 2018 The Market Has a Stomach Bug
If I may quote a bit of Dickens, “Stocks are down: to begin with. There is no doubt whatever about that.”
After such a pleasant (if not completely paranoia-free) 2017 in the markets, 2018 has been a bit more…markety. We had a rough patch in early February where we saw stocks give up double digits before climbing back up a touch, and here we are again this week, with the S&P 500 down 4.5% and the Dow down 5% and retaking its low close on February 9.
Ascribing a narrative to market movements is surprisingly easy, but also impossible. At best, we can give an hypothesis about public headlines and events and trends that we think play an important role in moving stock prices up or down, but in the end the markets are too chaotic—too human—to really know. That being said, in the last week there have been three important developments (in no particular order) that are playing at least some role in the decline:
- Facebook Privacy Scandal. On Tuesday of this week, the FTC opened an investigation into a company called Cambridge Analytica, which (among other alleged illegal acts) accessed private data for over 50 million Facebook users and then used that data to target voters via ads for Brexit’s “Leave” campaign, Ted Cruz’s 2016 presidential campaign, and President Trumps presidential campaign. Facebook’s stock is down about 8% this week, and because of its size and impact in the tech space, has probably not helped the Googles and Apples and Microsofts of the world.
- President Trump’s Trade Stance. On Thursday, President Trump announced new tariffs on $50 billion of Chinese imports (primarily steel and aluminum) and suggested there’s more to come, while delaying European tariffs until May. China has already retaliated with tariffs on $3 billion of US goods, but it’s unlikely that any of these so-called “trade wars” will be over soon. The efficacy (or lack thereof) of this trade stance notwithstanding, markets hate uncertainty, and there is a shroud of uncertainty around the situation.
- Rate Hike and More to Come. The Federal Reserve raised rates on Wednesday (from 1.5 percent to 1.75 percent), and reiterated its plan to a total of three—possibly four—of these hikes in 2018 as they walk the fine line of monetary policy and its impact on the broader economy and the capital markets. This was highly anticipated, so it’s not likely that the rate increase itself has had much to do with the market decline, but sometimes investors glean (or think they glean) information from the commentary that surrounds the Fed meetings, and there may be some ancillary concern there based on the number of hikes that may be expected in 2018.
In markets like these I’m reminded of how I feel when our 2 ½ year-old son Miles gets a stomach bug. It’s hard not to get scarred by the illness, it’s tough to know when the bug has fully passed, and then once it does it’s hard not to have some nagging background fear of when the next will occur. You may have real concerns about the markets or not. But if so, please know one of our most important responsibilities is walking through those fears with you. We’re here if you need us.
The difference between down markets and stomach bugs is key, though. A stomach bug demands attention, perhaps unlike any other normal life event. Down markets can usually be ignored. Ideally, your exposure to down markets via your allocation of stocks, in tandem with a planning process which helps reduce worry, means weeks like this don’t leave you—like a stomach bug—with no appetite and a bad taste in the back of your mouth. And just as importantly, an appropriate risk exposure and planning process means that weeks like this won’t keep you from using your money to do the things that matter most to you.