Volatility has returned to the market
February 8, 2018
It was not a good week for stocks.
Some pundits have been drawing comparisons between the performance of the Dow last Friday and Black Monday, the memorable day in 1987 when the index shed 508 points in a single day.
Yes, the Dow lost more than 600 points on Friday. That was about 2.5 percent of its value. On Black Monday, a lesser drop equated to a 22 percent loss for the Dow. In addition, Black Monday was widely attributed to program trading gone awry. The culprit behind last Friday's fall is likely to be bonds, according to Barron's.
Last week, the U.S. Treasury announced it would begin selling more short-term government bonds to fund the rising budget deficit. That sparked concerns about the impact of a bigger bond supply on interest rates. When bond supply exceeds demand, interest rates typically go up to attract investors. The Financial Times reported:
"Equity investing involves a delicate balance of three things: earnings, interest rates and valuation. Over the past decade, low long-term bond yields have played a crucial role in helping elevate equity valuations … 'You have to consistently show economic and earnings growth to justify these valuations at higher rates,' says Nicholas Colas, cofounder at DataTrek. 'People forget how closely tied economic and profit growth is to rising rates — it is a horse race and profit growth has to win — even if just by a little.'"
News about employment and wage gains added fuel to the fire of investor worries. In January, the United States experienced its strongest wage growth since 2009. While that's good news for workers, it may cause the Fed to raise rates more aggressively in an effort to keep inflation manageable.
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WHAT DOES SUCCESS MEAN TO YOU?
For some, having a big following on social media translates as success. NASA, which has more followers than any other government organization worldwide (28 million), may be considered successful. Of course, NASA doesn't hold a candle to Katy Perry, who has close to 106 million followers.
It will surprise few to learn the U.S. Treasury, which manages the money resources of the United States, doesn't have many followers (770,000); however, it has more than the Federal Reserve (446,000).
It's almost enough to make you wonder whether Americans care about money. They do, but on a more personal level. A corporate survey, Making It in America, queried Americans about what it means to reach a level of success.
One gauge of success is income, according to about two-thirds of the respondents. The group's average income was $57,426 a year. They would know they'd "made it" when they earned about $147,000 a year. According to CNBC, annual income of $150,000 would put many people in the middle class, depending on where they lived and the size of their households. It's notable few people aspire to join the ranks of the wealthiest Americans. More than three-fourths said they would not want to earn more than one million dollars a year.
D. Scott Peterson is CEO and head investment manager for Peterson Wealth Management. If you wish to contact him, call 775-673-1100, or visit PetersonWM.com.