The following economic awareness entry is based on short-term events and therefore should not be taken as information towards making investment decisions, which are of a long-term nature. It is only meant to provide clarity regarding current economic events, as there is often a large degree of incorrect information dispersed through the media or other sources.
An escalating trade dispute between the U.S. and China wasn't the only headline to affect markets. Last week also brought surprising data from the Labor Department. In March, the economy added 103,000 new jobs - far lower than economists anticipated. Meanwhile, wages grew, and unemployment remained a low 4.1%.
We are now 1 week into the 2nd quarter of 2018. As we examine what may lie ahead in the markets, we will also focus on understanding what has happened so far this year. Here are a few key findings from the 1st quarter.
In 2017, domestic markets experienced little volatility and significant gains. The 1st quarter of 2018, however, did not continue these trends.
The CBOE Volatility Index (VIX), a popular measure of volatility, increased by 81% in Q1, as stock performance fluctuated.
Between January and March, the S&P 500 had 23 days when it lost or gained 1%. In 2017's last quarter, the index didn't have a single day where it fluctuated that much. While the return of volatility may feel jarring, it is actually normal. Last year's calm is what is unusual.
Indexes Had Mixed Results
Major domestic indexes hit new records in January then slipped into corrections the next month. By March's end, they recovered somewhat from February's lows, but the S&P 500 and Dow still posted their 1st quarterly losses in more than 2 years. The S&P 500 lost 1.2% and the Dow dropped 2.3%. The NASDAQ ended in positive territory, with a 2.3% gain for the quarter.
The Economy Remained Strong
Despite market volatility and lackluster quarterly performance, the economy appears to be on solid ground. When announcing March's interest rate increase, the Federal Reserve beefed up the economy's growth projections and expressed that "the economic outlook has strengthened in recent months." In 2018, the Fed expects unemployment to fall to 3.8% and the economy to grow by 2.7%.
In the coming weeks, we will receive more data that reveals our Q1 economic performance. We will also work to find answers to important questions for the 2nd quarter, such as: What will happen with trade and tariffs? Will the labor market continue to strengthen? In the meantime, if you have questions of your own, we are always here to talk.
Wednesday: Consumer Price Index
Thursday: Jobless Claims, Import and Export Prices
Friday: Consumer Sentiment
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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