The Argent Trust Allocation and Strategy committee met yesterday afternoon and discussed the ongoing volatility in securities markets.
Market volatility has been a persistent theme in October 2018 and thus far in November. Just yesterday, the S&P 500 fell more than 1.8% and the Dow Jones fell more than 2.2%. Both indexes are negative for the year. A persistent set of news continues to overhang the markets, including: trade concerns with China, the impact of further policy tightening by the Federal Reserve, nearing the end of the current economic cycle, and a cautious outlook from certain companies in their most recent earnings reports, just to name a few of the headlines. Meanwhile, the housing market has come under pressure due to higher mortgage rates and higher prices, reducing affordability; and oil prices have plummeted due to increasing supply levels and concerns over weakening demand.
While painful, it is important to keep the current market movements in context. Economic data in the U.S. remains solid; including GDP growth above 3%, the unemployment rate below 4%, and core inflation measures remain near the 2% target of the Federal Reserve. Even with reduced economic activity, a recessionary period does not appear to be on the immediate horizon. Over the medium to long-term, market pullbacks are a healthy part of a normal functioning market; and should provide decent entry points for investors.
In all, we believe such a pullback can be healthy and highlights the importance of an appropriately allocated, diversified portfolio. Additionally, as we have been saying for some time, we believe it is appropriate to maintain target portfolio weights in the present environment and it is important to plan ahead for cash which may be needed in particular accounts.