Market impact: Understanding the recent stock market fluctuation

Augusta, GA (WJBF) -- Recent drops in the stock market has left people scared to take a look at their investments and 401k's. To help everyone understand what is happening, Will Caywood from the Fehrman Investment Group offers his analysis of the fluctuation and what can be expected going forward.

Brad Means: now let's check the financial front because if politics aren't in the headlines every day, finances are, especially lately. Will Caywood is our friend from the Fehrman Investment Group, he helps us with our money matters and Will welcome back.

Will Caywood: Good to be here Brad, thank you.

Brad Means: I found out that you were gonna be on the show today when I was looking at the schedule and I thought, "Okay, what do I ask Will?" And then I thought, you know what? Let's just start off pretty simply, what in the world has been going on with the stock market? I think the last time you were here we kept inching toward new records every week.

Will Caywood: Yeah.

Brad Means: And then it went away. But then came back up.

Will Caywood: That can happen, right? Yeah, so that's the way the stock market goes, I mean fortunately I listened to your first guest, and he is very knowledgeable, and compared to what's going on in the real world, this is very important, it's people's money, but at the same time those were some very hard-hitting topics he touched on for sure.

Brad Means: No question.

Will Caywood: Great question on the stock market, I mean people have been, you know making so much money, they ask us about stock market, but it's always, "Hey, great job," you know? And people aren't saying the same things to us anymore, but you know I think things were going really well through January, perhaps too well. At one point the market was up 7% through the end of January. The Dow went up through 25,000 it went up through 26,000 and then a lot of things happened there at the beginning of February. A combination of events took place, inflation worries, rise in interest rates, things start selling and then it triggers other things to sell, and so before you know it, you're down 10%. And so we hadn't had a 3% drawdown since the election in 2016 and we had a 10% correction in just one week. One of my favorite sayings is we took the stairs up over the last year or two, and we took the elevator down.

Brad Means: We so did. What's a correction mean? What does that mean when the market does that?

Will Caywood: Yeah, it's basically just a 10% from point to point, so we were up over 26,000 on the Dow, we dropped down to below 24,000 at one point in early February and we're back to around 25,000 now, so we kinda went all the way down and halfway back up.

Brad Means: Well you touched on some of the reasons that that happened, but really what's different in the market now than where the market stood just a few short weeks ago?

Will Caywood: Yeah the main difference is investor psychology or kinda how they feel about things, they're a little more edgy than they were before. One of the biggest things is as quick and a painful and expensive reminder to some people that the markets just don't go straight up forever, I mean they can go both ways unfortunately. So 2017 was the first year ever where we had 12 months, every month in the year of 2017, the market was higher at the end of the month than it was at the beginning of the month. So 12 for 12 up months last year. First time it's ever happened.

Brad Means: Wow.

Will Caywood: We already talked about the end of '16 was really good in November, December, January was obviously a great month. We were working on a 15 month winning streak, which has never happened before, so we were long overdue for a correction. And another reason is interest rates. Interest rates really started to creep up, they don't get the headlines that the stock market does every day but they have a big impact on where the market's going. And the stock market's forward looking, we're not looking backwards at where we are today, they're looking forward six to nine months there in the future.

Brad Means: So you think there's still some fear and trepidation about what interest rates might do?

Will Caywood: Yeah, that's one of the concerns going into the year. A lot of people thought the interest rates would rise, obviously the Fed kinda tipped us off that probably three or four rate hikes this year, but the speed at which rates rose at the beginning of the year was not expected.

Brad Means: What about similarities in the market today, versus a few weeks ago?

Will Caywood: Yeah, that's the funny thing is that fundamentally, things are just as good as they were a few weeks ago, it's just we're at different levels now. So all the economic numbers keep coming out the same. Some of the biggest fundamentals, there's really four that I want to talk about. Upcoming GDP Report, that's expected to be over 3%, that'll be the highest record in over a decade on that. Excellent employment numbers, it's as good as it's ever been.

Brad Means: Yeah.

Will Caywood: Rising wage growth, everybody's making good, well the people that are fortunate to have a job are making as much money as they ever have. Rising 2018 corporate earnings look to be moving up at 15% or more for the year, so that's great news. And then finally the impacts of the new tax reform, you touched on it in the first segment. Those will help me and you, they'll help the people in this building, they'll help, you know the largest corporations and a lot of that cash that's overseas, the repatriation of those dollars is $2.7 trillion, so about like your salary.

Brad Means: Absolutely, $2.7.

Will Caywood: $2.7 trillion. So a lot of that money's coming back from overseas.

Brad Means: Well that's all encouraging news and I hope that we continue to see things stable or improving financially. From a big picture perspective, how did this recent pullback that we've been talking about hurt investors?

Will Caywood: So it all depends on, it's kinda like the old rollercoaster thing, you only get hurt if you get off, right? So while it's going, so if you didn't jump off, you kinda stayed the course like we've advised clients to do, nothing much has changed, it's basically rewound back to the first of the year. So the gains that we had in the first four weeks and the loses we had in the second, the last two weeks was basically a wash and now we're starting the year just up slightly positive. So it all depends on perspective. As we discussed over the last couple years, we were long overdue for a correction, these markets don't go straight up, they go zig-zag. And so since 1980, we've had 36 corrections, as again, a correction is a 10% drop. 36 corrections since 1980 and we hadn't had one since February of '16, so we were two years since we had one, so double overdue since then. So if you take another step back, if you go back to February of '16, the S&P 500's up about 45%, Dow Jones Industrial Average is up about 55%, so it's been a really bad two weeks, but a really great two years.

Brad Means: Yeah, when I hear you say that, it feels great, but sometimes it's tough to see that day-to-day.

Will Caywood: Yeah, and that's what, you know our job is to look at the day-to-day, right? But if you're looking at your quarterly statement, or your monthly statement, you may not even notice the blip since it happened in the beginning of February, maybe we'll make it back by the end of the month, or hopefully at least by the end of March for sure.

Brad Means: I will say I kinda glanced out of the corner of my eye at the 401k a couple of days ago and after all the smoke had cleared.

Will Caywood: Right.

Brad Means: And it hadn't really changed that, I mean it hadn't taken a downturn.

Will Caywood: Right, yeah I mean, you kinda have to be a little bit twisted if you enjoy looking at your statements or your account the last few days, but.

Brad Means: Yeah.

Will Caywood: It's part of it.

Brad Means: It's part of it for sure. What about the rest of the year? You say we're sorta back at square one, maybe a little bit ahead, what happens for the rest of 2018?

Will Caywood: Yeah, we're still fairly bullish, I mean I hate to be just kind of always good news type guy but you know the--

Brad Means: No, you're not.

Will Caywood: The fundamentals of the market are really strong, I mean companies are as strong as they've been, the tax reform's gonna be a huge thing. It kind of happened right there before Christmas, and you mentioned on the first segment, I mean that was a big deal and it's gonna continue to be a big deal starting with people's paychecks this month. People have more money to spend on different things. I was looking at, the stock market's a very exciting place to invest, but we wish it'd be a little bit less exciting going forward. When you get alerts on your phone, they never give you an alert for good news, but it seems like you've been getting too many alerts on the market the last few days. So hopefully that settles down some.

Brad Means: Yeah I hope so, a quieter rest of the year for sure. Well we appreciate your expertise as always Will, and we'll continue to check in with you, hopefully with more encouraging news each time.

Will Caywood: Sounds good. Look forward to it, thank you.

Brad Means: Alright Will Caywood, the Fehrman Investment Group. Go see them on Professional Parkway in Augusta, just down the road from Television Park. Or you can get a complementary financial review if you set it up by calling them,922-3590 and FehrmanInvestmentGroup, one word .com is their website, go check that out as well and get one-on-one advice from them


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