What a wild ride this week! It was a rough one, with the markets down for the second consecutive week. The S&P500 was down 7%, and 2018 has turned red for the year, despite the strong start. In an oddity, small caps outperformed large caps this week, which is rare when the markets go down as much as they did this week.
Given the weekly loss and volatility, the VIX soared and closed above 30 after being sub 10 nearly all year long. While I am not sure what affect it is truly having, I am hearing chatter that leveraged volatility products are causing a lot of the market sell off. Regardless, the big scare on Monday was the Fed giving itself wiggle room to have 4 interest rate increases in 2018, instead of the guided upon 3 interest rate increases. This news shouldn’t have had as much affect as it did, but the uncertainty spiked the volatility, which, when leveraged at 3-4x, caused some quick selling, which scared people and caused further selling.
In other economic news, a strong jobs report came out this week and the unemployment rate remains at historic lows near 4.1%. Treasury yields were strong all week, despite the volatility, with the 10 year closing above 2.8%.
In political news, a budget deal to prevent a government shutdown failed to get completed before Thursday night deadline (not a shocker), but was quickly remedied when President Trump signed a massive spending bill, which raised the debt ceiling, on Friday morning.
Fundamentally, little changed during the week despite the volatility, and the shakeout will likely prove to be a buying opportunity in 2018 for those with a long-term investment horizon.
Good luck!
Brian