Fourth Quarter 2018 Market Review

Happy New Year! I hope you had a wonderful holiday and that your 2019 is off to a good start. Throughout the year, we like to keep you updated on our thoughts on the markets and your portfolios we are managing. Given recent market volatility and the continued media coverage, we feel these communications are especially important and hope you find this information helpful. 2018 - Tough Year for the Markets The last few months have been a reminder that the stock market is anything but predictable in the short-term, and most investors were happy to see 2018 come to an end. Investors went into the beginning of the year feeling confident, with a growing economy and new corporate tax cuts. We saw a sharp downturn in the market during February, as uncertainty about the direction of trade policy, slowing economic growth and inflation fears crept in. While volatile, the market continued to climb until September, when we saw a dramatic reversal during the last quarter of the year for several reasons – the Fed’s tightening to normalize interest rates, the continued showdown between the United States and China, and a global concern about an economic slowdown. We ended the year with the worst December since the Great Depression and all three major indices finishing in the red. The Dow Jones Industrial Average was down 5.6% for the year, the S&P 500 was down 6.2% for the year, and the Nasdaq Composite Index ended the year down 3.9%. Bond investors were also delivered a reality check, with the Barclay’s U.S. Aggregate Bond Index delivering only a .01% total return for the year. The result was the worst year for stocks since 2008, and only the second time in the past decade that the Dow & S&P have ended the year in negative territory. Most investors experienced negative returns for the first time in a decade. Volatility Returns to Normal Leading into last year, investors became increasingly complacent to the risks in the market during the longest bull run in history. I’ve been reiterating to our clients that the return to market fluctuations we are seeing is actually normal after seeing an unusually long cycle of little to no volatility where the market just continues to rise without interruption. In the market, volatility is usually measured by big daily price swings. To give you an idea of the increase we saw last year, in 2017 the markets were unusually calm, with the S&P 500 having only eight days with a gain or loss of 1%. In 2018, we saw the market move more than 1% in either direction a total of 64 times. The Dow has moved more than 1,000 points in a single session only eight times, five of which were during 2018. Markets rise and fall and the drops are always scary, but we build portfolios knowing that normal markets experience fluctuations. Looking Ahead to 2019 We are now looking ahead to see what 2019 will bring, with market watchers divided on whether it will be a blip or we will see further corrections and enter a bear market. As I have said in recent communications, the primary risk to the market remains the economy. While still healthy, we are in the later stages of a business cycle. The risk of a recession has increased, but a repeat of 2008 seems unlikely at this point. The Fed seems committed to further rate hikes and fundamentally, there is still underlying strength in the economy. Time will tell as economic data such as corporate earnings, consumer confidence, housing starts, and labor market reports come in throughout the year. Historically, the stock market tends to lead the economy by several months, but not all bear markets mean that a recession will follow. We are still seeing good growth, and there may be some attractive opportunities both in the U.S. and globally for investors who remain patient and focused on the long-term. Discipline and diversification will continue to be our priorities, as well as fundamental analysis and staying focused on long-term asset allocations that are in line with our clients’ investment objectives and risk tolerances. It is important to approach 2019 with this mindset rather than reacting to short-term events and making sudden changes. With that said, we also want to make sure that you are communicating to us about cash needs, as our goal is to have multiple months of liquid needs on hand so that we are not forced to sell securities at inopportune times. We continue to evaluate portfolio asset allocations to ensure that they are appropriate for stated goals and objectives. As always, your questions and concerns are extremely important to us, so please reach out to us to directly discuss or schedule a review meeting if there is anything you may need. Thank you for your continued business - wishing you a wonderful year!

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