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INSIDE THIS EDITION:
The End of Easy Money
American Consumers Remain Bullish
Weekly Technical Comment
Portfolio Stress Test
401k Plan Manager
While last week was a difficult week for stocks, yesterday major stock indexes lost more than all last week. For context, last week the large stocks of the S&P 500 lost ground and fell 3.8%. Smaller companies of the Russell 2000 fell 3.7%.
In last week’s report, we closed the first section of the report “Presently we are suggesting caution”. In our January 23rd report, entitled “Events Worth Watching”, we highlighted over enthusiasm in the market, yields, inflationary pressure, economic growth, the federal reserve and national debt. These factors came into play last week and on Monday.
Despite the recent sell off in markets over the last couple of days, American consumers haven’t been as bullish since before the financial crisis and for good reason. The labor market is strong. Nonfarm payrolls just added another 200k jobs in February. The unemployment rate, at 4.1%, continues trending lower and is currently at its lowest reading since 2000.
Weekly Technical Comment
S&P 500 Fall Below 50-Day Average
Stocks had a terrible day yesterday. Major stock indexes in the U.S. lost about 4% in one day. And some chart damage was done. The daily bars in Chart 1 show the S&P 500 falling well below its 50-day average. Its next potential support is the rising trendline drawn under its November 2016 and August 2017 lows near 2600. That would bring the S&P 500 down close to 10% which hasn’t been seen in two years. If that doesn’t hold, the 200-day moving average could be next. Some good news may be that the 14-day RSI line (top of chart) slipped below 30 today which puts it in oversold territory for the first time since late 2016. Market breadth was weak and volume was heavy. All market sectors suffered big losses as did stocks all over the world. Volatility soared. Chart 2 shows the CBOE Volatility (VIX) Index more than doubling in value to the highest level since 2015. The only good there is that the three previous moves above 40 coincided with market bottoms. Safe havens gained some ground, but not much.
STA Wealth Management – Portfolio Stress Test
By Scott Bishop, MBA, CPA/PFS, CFP®
Partner and Executive VP of Financial Planning
In November of 2017, I wrote the article suggesting that it may be time for you to perform a “Portfolio Stress Test”. Many of our newsletter readers were a little worried that the Bull Market run was getting ahead of itself, and I was suggesting that there was no better time than during a bull run to review your portfolio strategy and susceptibility to market risk and volatility…Similar to how you would rather have a treadmill stress test to check your heart health BEFORE you have a heart attack.
In the last few days, the market has erased all the gains for 2018. If that makes you nervous or worried, do not make a decision to “sell and go to cash” based on emotion. Get some data to make an informed decision. You should ask yourself these questions:
If you don’t know the answer, I would suggest that it is time to review your strategy or at least get a stress test to see how it will react if this negative market trend continues. During one of the recent market pull-backs in 2014, I was asked by CNBC to write two articles that may be worth revisiting now:
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