Last year, the Dow Jones Industrial Average had 71 days with record closes. On January 25, 2017 the Dow crossed 20,000 for the first time and recently crossed the25,000 mark. Due to the market growth we’ve had in 2017, a common question we hear is “when is this going to end?”
Although no one can continually predict the beginning and ending of Bull Markets, we think 2018 will be another year of growth. The anticipation and passing of tax reform will likely provide an increase in corporate earnings in 2018. The U.S. economy is on solid ground and increases in earnings should support additional stock market growth. While it will be difficult to top last year’s performance, we see many things to look forward to.
Even with the optimism heading into 2018, we expect volatility to increase. Last year the biggest drop in the S&P 500, from high to low, was only 3%. This is historically very low, so we anticipate, and you should be prepared for bigger market swings in 2018. Again, we expect a positive year and pullbacks are a normal occurrence inside long term rising markets. We do not think a pullback in 2018 will be a cause for concern or a time to make drastic changes that could affect your long term goals.
With equity markets hitting all-time highs, we have re-balanced to make sure we maintain the appropriate risk target in your accounts. In effect, we are taking gains from equity holdings and increasing our allocation to fixed income. In addition, we are reducing our small cap and real estate exposure and moving to more defensive large caps and increasing out international exposure. This should help reduce the volatility of returns heading into 2018.
As always, if you have any questions or if you know of anyone else that could use our help, do not hesitate to contact us!
AEGIS Financial and Investment Committee
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