It’s easy to get caught up in the day to day, and even the year to year fluctuations in the stock market. We know from countless studies, the most productive investors typically stay invested in the stock market, even through times of volatility. After nine straight quarterly wins for the S&P 500 index, stocks fell slightly in the first quarter, losing .8% on a total return basis. The return of volatility was the big story of the quarter (besides the bull market’s ninth birthday), as the index suffered its first 10% correction since January 2016. Weakness was driven by several factors that led to the return of market volatility.
After a great start to the year in January, the increased volatility over the past two months has been slightly unnerving for many investors. However, just because stocks were down in the quarter—and not by much—that does not mean that market fundamentals have deteriorated. While we acknowledge the risk associated with protectionist U.S. trade policy, we continue to expect accelerating economic growth this year, in large part due to the effects of the new tax law, which could give earnings a significant boost. We believe still-contained inflation and low interest rates are supportive of stock valuations at current levels.