Good Just Isn’t Good Enough

By: Steven Higgins, Financial Advisor, Principal

The story of 2018 is about unfulfilled expectations and uncertainty instead of the reality of corporate earnings growth, robust economic data, and stocks peaking around the corner at all-time highs. January started with a bang extending the impressive gains of 2017.  The S&P 500 exploded out of the gates posting gains of 7.45% by January 26, 2018.  Then, February brought talk of higher than expected inflation and corresponding interest rate increases.  The S&P 500 just barely notched a correction closing down 10.2% on February 8th.  Stocks made a strong effort to recover only to be met with the sudden talk of a “trade war” as the White House began to ramp up it’s talk of global tariffs.  For the next several months, continuing positive economic news was somewhat mitigated with uncertainty as global trade policy was essentially levied via early morning tweets.  However, behind the headlines, stocks have continued to post decent returns and so far, 2018 has been a good year for investors of U.S. stocks.

Starting in the spring of 2017 in our blog post “Inflated Expectations,” we began talking and writing about the prospects of higher than expected inflation and what an inflationary cycle might look and feel like.  

We communicated five key expectations: 

1. Increased inflation

2. Increased stock market volatility

3. Increased stock prices

4. Increased interest rates

5. Decreased bond values

While the cycle is in the early stages, it may be a good time to take stock of where we are regarding our expectations.  

As of August 13, 2018 the S&P 500 sits just 1.5% off the all-time high with a year-to-date gain of 5%.  That doesn’t seem to be “good enough” for investors.  Some people are acting as if stocks are down for the year.  This malaise seems be resulting from the feeling stocks just are not quite at all-time highs and “I just don’t have the absolute most money I’ve ever had.”  The truth is the year didn’t start on January 26th and investors have certainly been rewarded by being steadfast.  It is true, this year’s gains have come at the cost of sleepless nights and increased volatility.  But, if you are our client and you have been listening, you already knew this was coming.  

Fortunately and unfortunately, this reality is likely going to be around for a while.  We continue to manage and rebalance portfolios in order to best position our clients for an inflationary environment with increasing interest rates and increased volatility.  If you have any questions for our team or if you think you could benefit from sitting down with us, please do not hesitate to reach out.