Rate Hike Worries?

February 9, 2018

The stock market (S&P 500) entered into correction territory on Thursday, down 10% from its January 26th high.  Corrections have occurred, on average, every 18 months.  It has been 24 months since the previous correction in February of 2016.

 

There are no negative fundamental reasons for the current selloff. Most analysts point to the stronger-than-expected jobs report and wage number from last Friday.  Even though these numbers are considered positive for the economy, the concern is the Federal Reserve may reduce its monetary stimulus and increase interest rates more aggressively as the economy continues to strengthen.  History, however, shows that investors shouldn’t fear rising rates.  Analysis below:

 

Though history doesn’t provide certainty, we do think this correction was overdue, but is also close to overdone.  We view the current pullback as an opportunity.  Rebalancing allocated portfolios can be highly beneficial during pullbacks.  This allows the disciplined investor to take advantage of lower prices while staying fully invested.  There’s an old saying on Wall Street, “Emotions are the investor’s worst enemy.”  Stay disciplined, stay diversified.

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