Weekly Market Commentary March 19, 2018

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The S&P 500 slid 1.2% on increased concerns about political risk. The global MSCI ACWI dropped 0.6%, and the Bloomberg BarCap Aggregate Bond Index edged 0.2% higher. The S&P 500 is up 2.9% so far this year.

Key points for the week

  • Inflation was tame in February but remains a concern.
  • The Federal Reserve is expected to hike rates this week.
  • February tied as the most volatile month since 1996.
  • The number of big moves so far this year is roughly average.

Economic Analysis

The Federal Reserve is expected to use a fairly strong economy and modest inflation to support raising rates at its meeting this week. The Fed remains focused on unwinding its policy of unnaturally low rates implemented during the 2008 financial crisis.

The inflation data suggests that the plan is working. Prices are increasing at a healthy pace, while consumer inflation is rising at a moderate pace and is in line with the Fed’s goal. Last week, the Department of Labor announced inflation rose 0.2% in February and 2.2% over the last year. Both numbers matched expectations.

While this month’s numbers were good, we continue to watch inflation for signs of trouble. Wages and benefits are increasing very slowly for an economy near full employment.


Risk Analysis

However, January was a calm month, and unless there are more 1% moves, the quarter will be about average.

This year has felt more volatile than it has actually been. That is primarily because investors are comparing it to 2017. There were only two 1% moves during the entire first quarter of 2017, and there weren’t any in February. Last year may have been the calmest ever in the markets. But if investors expect every year to behave that way, they should expect to be disappointed.


 

Fun story of the week

Plane loses its $368 million cargo on takeoff

What is one way, besides investing, someone can make a fortune by sitting at home? Waiting for it to rain gold and diamonds, of course! A plane carrying a cargo load of gold, diamonds, and platinum worth $368 million was taking off from Yakutsk airport in Russia when part of its cargo section fell out. The majority of the valuable items hit the runway, but dozens of gold bars continued to drop during flight. Unfortunately, people who found gold in the area were expected to report it immediately or be prosecuted. So, I guess, that brings us back to investing.


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