The capitalist party of 2017 lasted through January and the ensuing hangover sure has been one we would like to forget. A market correction had been expected for quite some time, but when it finally came, it surprised everyone with its rapid and violent moves. This was especially evident towards the end of the quarter after wild market movements had calmed down a bit, with the major averages moving over 2% for a handful of days to close out the month of March.
Through recent experiences in history, investors have been conditioned to buy the dips. From the high yield bond scare to Brexit, all the way to the Trump election result, each said decline was met with eventual buying interest that pushed stocks to new all-time highs. Similar to those noted opportunities, much of what the market has been worried about of late seems to be the political risk and rising fear of the “worst case” economic scenario. However, that may be again misplaced as it can be argued that the fundamental outlook is better today with interest rates remaining low, and corporate earnings set to rise by over 10% due to the 2018 corporate tax cut. The big question is whether the cut will notably affect consumer behavior and spark additional spending and therefore inventory building/rising production on behalf of the companies in the S&P 500.
Trade reform, which was once on the bottom of the economic “to do” pile, has rocketed straight to the top given the recent angst over proposed tariffs and sanctions. If the focus is strictly on trade, the U.S. is indeed losing, suffering the largest trade deficit in 20 years just last month. Outside of the trade arena, the economy continues on its growth path near 3% annually, and monthly job growth is averaging around 200K. Perhaps augmenting the economic backdrop in early April will be an earnings season that should be very revealing. While the positive slope to earnings this year in light of the tax bill will be a welcome sight, more important are comments on the trade dealings, should they surface.
Some portfolio positions were increased when the markets first fell in early February. Since then, trade talk has roiled the markets, but the economic and fundamental impact is hard to measure as adjustments are constantly being made to the possible tariff implementation. Interest rates remain an area of focus as they relate to our allocations, given that valuations in the U.S. remain at elevated levels. International valuations, however, remain inexpensive with emerging markets remain attractive relative to their historical ranges. We continue to review our holdings for opportunities to increase those positions toward their maximum weights given an appropriate level of risk.
Kingsview Asset Management, LLC (“KAM”) is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.