By CHRIS McINTIRE
McIntire Retirement Services It’s good to be writing again after a few months away. If any equity investor was wondering when the market was going to have some topsy turvy months, your wait is over. February and March were certainly volatile after a very calm and rewarding 2017 for equity investors.
In February, there was volatility in both stocks and bonds as a general asset classes. Bonds were selling off a bit as the threat of continued rising interest rates had many investors changing their strategies to hedge that risk. Bond prices fall as interest rates on newly issued bonds rise with interest rate increases from the Federal Reserve.
Stocks began to selloff as well, as investors chose to take profits and take a wait and see approach and await earnings season to see if the increase in equity (stock) prices is supported by increased earnings of the companies they invest in. Earnings for the first quarter, at the time of this writing, has been mainly positive and there was at least a mild rebound in equities as we ended March and moved into the first two weeks of April.
Headlines have driven much of our emotional investing decision making process as the 24-hour news cycle and the “if it bleeds, it leads” mentality of our media continues to shape our frames of mind. Tweets and Tariffs continue to make us ponder the direction of the markets while we continue with this long bull market run. Let’s agree, a negative tweet from a certain person in Washington has had an impact, at least for that day (the writer is smiling at intended humor here).
The impact of the corporate tax cuts, as well as the personal cuts, will play out through this year. If corporations use the tax savings to buy back their stock, equity prices could rise sharply as the laws of supply and demand may take precedence. If they use those savings to reinvest and build new plants, modernize machinery and hire new employees, you could see where that would lead to a longer growth cycle and that’s certainly good news as well.
The bond market will continue to be affected by how fast and by how much they raise interest rates. This is where a lot of attention will be paid going forward. Most of us investors have been conditioned to historically low interest rates and if the path to normalized rates is going to be sustained, one could argue to stay in shorter term durations so as the bonds mature in the mutual fund or exchange traded fund (ETF), they are replaced with higher interest paying ones.
This is a way to combat the interest rate risk in bonds.
It is always a wise thing for the average investor to maintain a well-diversified portfolio in multiple asset classes to spread out the risk of loss. Wall Street does not always deliver like we would like as we know from previous experiences. Thanks for reading and let us know if we can help!
McIntire is investment advisor representative for McIntire Retirement Services at 900 W.S. Boundary St., 3A, Perrysburg; 622 1/2 W. State St., Fremont; and 205 S.E. Catawba Road, Port Clinton. For information, email chris@ mcintireretirementservices.com or call 866-695- 2620. Investment advisory services are offered through Brookstone Capital Management LLC., a registered investment advisor. BCM and McIntire Retirement Services are independent of each other.