During the past few years the equity markets have made tremendous gains with the Dow Jones Average hitting a high of 26,616 on January 26th 2018. Over the last few days the Dow Jones Averages has fallen over 2000 points from the high posted on January 26, 2018. This decline in equity markets has prompted many questions regarding whether the fantastic rally is over or is this decline just a correction and the Dow Jones Average continues to move higher. The equity markets could be beginning to react to the fact that interest rates are finally moving higher in a meaningful way. While higher interest rates may affect the equity markets, we also must consider the reason why interest rates are moving higher? The current move of interest rates could be a reaction to the Federal Reserve Board’s statements which forecast greater economic growth and higher wages. It is ironic that a better economy could cause markets to decline.
For a stock market which has relied on low interest rates for the past ten years, Higher interest rates is a big change and markets do not often like change…. especially in the short term. On the flip side of this argument, better economic growth should create better earnings for many companies. Better earnings tend to make for higher stock prices. In fact, many analysts expect the S&P 500 earnings to grown by over 10% in 2018.
As such I believe this sudden decline is a much-needed correction for a market which has moved higher rapidly since November of 2016. Moving forward we are looking for buying opportunities in sectors which may benefit from both an increase in Interest Rates and Economic Activity.
Always know that at Market Capital Management, Inc. we are constantly monitor the markets and our clients accounts. We will continue to keep our clients informed as events occur. Please call us at 760-434-3575 or email email@example.com with any questions. You can always stop by our office on the corner of Grand & Roosevelt in the heart of downtown Carlsbad. Finally, thank you for your continued trust.