After enduring a number of big swings in the market, investors benefited from a steady uptrend in stocks last week. The S&P 500 gained 2.6%, and only a tiny loss on Friday stopped the index from rising every day. The gains came steadily as there were no moves of more than 1% last week.
News was generally positive. Inflation matched expectations and dropped slightly on lower energy prices, and core inflation rose 0.2%. For the last year, overall inflation rose 1.9%, and core inflation rose 2.2%. Trade talks between the U.S. and China produced a commitment for another set of meetings later in the month. Investors continued to put little weight on the government shutdown. Rather, corporate earnings season, which kicks off on Monday, is expected to be a major focus.
Global stocks participated in the market strength. The MSCI ACWI, which includes stocks from developed and emerging markets, rose 2.9%. Bonds lagged as the Bloomberg BarCap Aggregate Bond Index dropped less than 0.1%.
Key Points for the Week
- Markets rose for the third week in a row as earnings season kicks off.
- Inflation remains under control, and U.S.-China talks are moving to the next stage.
- Strong performance is an opportunity to reassess risk tolerance.
How Do You Feel?
Last week’s rally was a welcome respite from recent volatility and comes on the back of very strong performance in recent weeks. The S&P 500 has soared 10.5% since the December 24 low. Reviewing the last three weeks, which include the losses on the 24th, the S&P rose 7.6% and produced the best three-week return since November 2014.
Rallies like this one offer a good opportunity for assessing your risk tolerance. The emotions during the decline are fresh, but if you make changes, you know you aren’t selling at the bottom. When reflecting on how you felt during the recent market decline, keep the following items in mind:
- The rally doesn’t mean the downturn is over: Bear-market rallies, or the more colorful “dead-cat bounces” (sorry, cat lovers), are often part of severe market declines.
- Expect markets to overreact to news. Whether trade news, economic data, or corporate earnings, jittery investors are likely to magnify the importance of any new information.
- A little discomfort is normal; but if fear or worry was starting to grip you too tightly during the downturn, talk with your advisor about ways to reduce risk. There are lots of ways to do so, and very rarely do they involve moving a large portion of your assets to cash.
A moose wandered into an Alaskan hospital last week attempting to escape the cold. A video emerged from the encounter, and the moose instantly gained stardom. The moose didn’t cause any harm to anyone but did grab a quick, 15-minute snack before heading back into the Alaskan cold.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
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