We realize it’s difficult to avoid feeling panicky during times of market volatility, especially amidst recent dramatic headlines. Concerns over sky-rocketing inflation are the primary culprits for the unrest. If we put that into perspective and simply put, although US inflation is expected to rise in the coming year, US government bond yields remain very low by historical standards. So, before you convince yourself that a bear market is looming, consider that the US economy is gaining strength, corporate profits are beating expectations, and money is shifting into more offensive areas tied to a stronger economy. As the economy accelerates, sales and earnings expand and valuations rise making the expensive more expensive. Not to mention, the tax-reform bill passed in December is pro-business. Given that a bear market typically only slightly leads weakening economic conditions, we do not expect this correction to be anything more than just that, a healthy correction. Nonetheless, the correction may not be over yet.
Although we don’t know how long this correction will last, Friday’s rebound is worth noting. Technology stocks were at the forefront of the reversal and the CBOE Volatility Index (VIX) has posted lower highs since then, definitely a good thing for stocks. However, we would like to see the VIX break below 20, accompanied by broader market participation. Although we added some equity exposure on Friday, we took some profits today ahead of resistance areas in the main indices. To be continued…
