The financial markets continued to decline in the month of February after two years of relatively low volatility. For the month of February, the S&P 500 declined -3.89% and the FTSE All World Ex-U.S. Index decreased -4.61%. For the year ending February 28th, the S&P 500 increased 1.50% and the FTSE All World Ex-U.S. was flat at .53%.
In the first few months of 2018, we experienced continued global growth, strong corporate fundamentals and tailwinds from the tax reform bill. Inflation is still low, but we believe it will increase slightly. The impact of the Tax Cuts and Jobs Act of 2017 will continue to help the economy in 2018 which should move long-term interest rates higher and force the Fed to continue raising short-term rates. We believe that the Fed may raise rates several more times this year with faster economic growth and inflation rising. In fact, Fed Chair Jerome Powell testified before congress last month, insinuating that the economic outlook was good, and he was inclined to raise rates this year.
President Trump confirmed speculation that he would place tariffs on steel and aluminum imports, despite objections from his policy advisors. The tariff announcement could be negative for financial markets if there is any retaliatory action from other countries, and in general, these tariffs could cause price increases for certain goods.
Real GDP increased at an annual rate of 2.5% in the fourth quarter of 2017, according to the second estimate by the Bureau of Economic Analysis. Total nonfarm payroll employment increased by 313,000 in February, and the unemployment rate was unchanged at 4.1%. The Conference Board’s consumer confidence measure surged to a 17-year high of 130.8 in February, from 124.3. This underscores that household confidence and sentiment is strong, as consumers are seeing more in their paychecks from the tax cuts, despite increased market volatility. The ISM manufacturing index rose in February to 60.8, from 59.1, bringing it to a 13-year high.
Internationally, most economies are growing and we expect this trend to continue. The Bank of Japan and the European Central Bank held meetings this week and are expected to wind down their quantitative easing programs, which is a positive sign for a stable economy.
We know that market volatility, especially after long periods of relatively calm growth, can be unnerving, and we encourage you to talk to us about your current allocation. If you are a client and would like further detail on these topics or anything else, please don’t hesitate to call or email us. If you are not a client, but would like more information on Callan Capital’s wealth management services, please contact us at (858) 551-3800 or visit www.callancapital.com.
Data are as of March 12, 2018
Past performance does not guarantee future results.
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. Indexes are unmanaged.
The FTSE All-World ex US Index is one of a number of indexes designed to help investors benchmark their international investments. The index comprises Large and Mid cap stocks providing coverage of Developed and Emerging Markets excluding the US. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
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The views expressed are those of Callan Capital, LLC. They are subject to change at any time..