Volatility & the Ides of March: What’s Next?

We have already had more volatility in the first three months of 2018 than we saw in ALL of 2017 and most of 2016 combined. Snow? On the first day of Spring!  Driverless cars on the road… What’s next?

The snow wasn’t the worst part of it. Facebook stumbled this week amidst legitimate concerns of how honest it is with protecting its user data. This is not the first time Facebook has faced the issue of deceiving its users: back in 2012 under a decree with the FTC Facebook had to agree to get user consent in order to share users’ personal data with others.

Apparently since then Facebook either violated that decree or carelessly allowed personal data “unknowingly” to be shared with an analytics firm. (Does anyone really think Facebook cares about the privacy of its users’ information?) The CEO of Facebook, Mark Zuckerberg, was silent for nearly three days on this issue. Technology stocks were down between 4.25-5.0% over the past week in sympathy with Facebook’s woes and more general stock market weakness.

Which leads to the topic of:

The Board of the US Federal Reserve (“The Fed”) met this week and has a new Chairman, Jerome Powell, and he has been far from silent about interest rates, inflation, and economic growth. Why is this important? Because when the Fed is concerned and starts talking about inflation, it then reacts by raising interest rates. This may sound good to savers and CD buyers – and even holders of gold – but rising interest rates have a “trickle down” effect that in the present could disrupt a “Goldilocks” (not-too-hot-not-too-cold) market.

The Good News:

• The Fed says economic growth may be HIGHER than original expectations for 2018 and 2019, although may back down in 2020.
• A spending bill from Congress back in February is part of the reason for the increase in economic growth expectations.
• Unemployment is projected to be lower for the next two years – lower than at any time since the Korean War (early 1950’s).

BUT –

The Not So Good News:

• Inflation is projected to increase in 2018 and 2019 to just over 2%, although stay the same or go back down in 2020.
• Predicting inflation is not a precise science for even the bright minds at the Fed. Inflation affects different items differently (healthcare costs are currently rising at more than double or triple the published rate of inflation). Stay tuned for what really happens with inflation.
• For now, the Fed is raising interest rates to attempt to fight a swift increase in inflation.
• Stocks do not like interest rate increases in the short-term.

The “pile on” of news continued with the tragic death of a pedestrian by a driverless Uber car. Interestingly, there appears to be a long, long-term metamorphosis potentially in progress regarding automobile insurance for individuals. Apparently, consultants* say that makers of vehicles and their “complex parts” may bear the greater share – and cost – of liability than the individual driver in wrecks due to individuals not being at the helm of the automobile of the future.

Think about that while you are driving in the snow in March. No matter what market news, tariff news or weather scenario, the stock and bond markets are due for increased volatility. We have already had more volatility in the first three months of 2018 than we saw in ALL of 2017 and most of 2016 combined. Consider a relationship with a CERTIFIED FINANCIAL PLANNER™ as your insurance against the fear and emotions that accompany the volatility along the way. That is why I am here.

*The Wall Street Journal, “Insurers Race to Develop Coverage for Driverless Cars”, March 21, 2018.