Stocks were lower for the second week in a row as equity markets saw moderate moves both up and down midweek. Wednesday's market decline and Thursday's subsequent rally gave investors a taste of volatility, but the Dow Jones Industrial Average has not experienced a 1% intraday drop over the past 66 trading days, a record streak. While progress was made on a new tax plan, investors are still focused on the differences between the respective U.S. House of Representatives and Senate plans and the difficulties associated with reconciling them. Although changes in government policies can have a sizable effect on investment returns, the timing and impact are harder to predict than you might think. Therefore, we think it’s better to follow time-tested investment principles and avoid letting politics influence your long-term strategy.
Remember market volatility? It's been a while. Long enough, in fact, that you might not have recognized it, but that crooked line in the stock market chart last week was indeed volatility. The S&P 500 dropped 0.7% midweek, with the Dow shedding 168 points in two days as markets reacted negatively to falling oil prices and worries surrounding the progress of tax reform. Optimism returned on Thursday to the tune of a nearly 200-point gain, followed by a 100-point drop to end the week.
All told, the Dow fell 0.3% on the week, a dip that hardly registers as a material move. However, it's noteworthy insofar as we haven't seen anything that resembles normal volatility for some time. The S&P 500 moved by more than 0.50% on two separate days last week, the first time that's happened since July. The market has risen in 10 of the last 13 weeks and hasn't posted a monthly loss since October 2016. Looking ahead to 2018, we think stock market swings are likely to be more frequent and more material than we've experienced over the past year. Consider the following:
|Dow Jones Industrial Average||23,358||-0.3%||18.2%|
|S&P 500 Index||2,579||-0.1%||15.2%|
|10-yr Treasury Yield||2.34%||-0.06%||-0.10%|
In a holiday-shortened week, existing home sales will be reported on Tuesday, and the Federal Reserve will release the minutes from its meeting earlier this month on Wednesday.
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