Almost 700 points ain’t what it used to be!
Today’s market selloff was long overdue. The equity markets have been setting numerous records, relative to both price gains and the absence of volatility. The catalyst for today’s drop was the jump in wages in today’s January Employment report, which increased fears that the Fed would raise rates in March.
We believe these fears are overblown, since the Fed has been deliberate in stating its intentions for three rate hikes in 2018. In addition, most market forecasters, including us, have been projecting a trading range of +2.75% to 3.25% in 2018.
Global growth is strong and corporate profits are projected to rise ~+15% in the coming year. Tax benefits, increased government spending, and higher lending capacity are reasons to remain optimistic about economic growth and equity prices. Despite today’s move in market interest rates, we will continue to discount record profits at historically reasonable rates. Though it’s never fun, LPL Research believes stocks needed to pull back from their record march.
At 25K, a drop of nearly 700 points represents a move of ~-2.5%. I can think of a few other 700 point moves over the course of my career that were much more scary!