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Market Review For 2/5/2018



What Happened?
The 2-day market drop of last week continued today and even accelerated.  While I’m disappointed I didn’t see these three days coming, I have defensively positioned Eunoia accounts so that all have done quite well (relatively speaking).  Rather than following the market down 4%, Eunoia accounts posted a much smaller -1.5% on average.
 
Despite what you may hear on the news, the key to this fall has been driven by expectations of higher inflation (due to stronger-than-expected jobs reports on Thursday and Friday) and the resulting higher interest rates associated with higher inflation.  This, combined with a bit of contagion (started by the fall of Bitcoin) as sellers panicked (or tried to lock in previous gains) has meant a very quick fall in the markets.
 
There are plenty of pundits babbling about this or that factor which, in their view, supports a buying stance.  Even the major Wall Street firms pushed a buying theme throughout the day, but, what else can you expect from firms more interested in their bottom lines than yours.  Do your best to ignore the sales pitch, hype (and hypocrisy) and remain focused on the factors that move markets – interest rates and valuation (with more than a dash of momentum).  I listened to lots of people today who have never seen a market drop talk about things that didn’t matter.  One woman was so fixated on volume it seemed it was the only financial related word she had ever heard.
 
My Expectations
Often (although not always), quick market falls are followed by short(ish) rises as the panic sellers either have nothing else to sell or are satisfied they have reduced risk in their portfolios.  At the same time, buyers start looking for bargains.  The net effect is to reverse the current one-direction of trades and push the market marginally higher (or at least stabilize it).  However, this period is often followed by another drop as those left in the market see limited upside (or more downside) risk and sell more.  The buyers then also run out of money to buy as their source of funds dries up as sellers sell mutual fund or other similarly commingled instruments.  As a result, I expect a bottoming out, some stability and/or a small rise followed by the market falling again.
 
My Plan
My plan is to become more active (and brave) in an attempt to capitalize on the above views.  I nearly pulled the trigger today, but wasn’t convinced the market had bottomed yet.  I will do my best to protect and grow your accounts no matter the market environment.
 
Your Plan
Stay calm.  Whether I find an opportunity to take advantage of the market’s action or not, Eunoia accounts are defensively positioned and will weather any storm better than most, and have so far.  However, please know that you can call or email at any time if you just want to talk about what’s going on.  I have your financial best interests in mind and am happy to allay any fears I can, as well as cut through the rhetoric to see things clearly.
 
Benchmarks
S&P 500 -4.10%
NASDAQ -3.78%
Barclay’s US Aggregate +0.39%
MSCI EAFEE -4.15%
Emerging Markets -3.31%
Eunoia Custom -2.05%
 
Volatility
Volatility +93.7%
 
Eunoia Composites
Total -1.52%
Taxable -1.20%
Qualified -2.13%
Externally Managed 2.10%