While several catalysts could potentially explain the market volatility over the past few days, what we have observed seems to be a good old-fashioned profit-taking pullback.

The cause for the pullback could be blamed on the market overheating. However, we are equally, if not more, concerned with the flattening of treasury yield curve. 2017 was an anomaly; the markets were up with virtually no volatility and decent corporate earnings, all backed by potential tax breaks serving as the tailwind.

The market seems to be doing fine with economic indicators pointing in positive directions, such as industrial output, solid earnings and record-low unemployment. While everything is “great,” it is very important to maintain a tempered expectation.



It’s implied that the Fed will tighten monetary policy with three to four rate hikes of the Fed Funds rate in 2018. Fear has emerged from the uncertainty of the Fed’s agenda, which, given the low unemployment and substantial wage growth, is likely unwarranted.

Our Fed has historically acted with purpose while moving at a snail’s pace. It is plausible the Fed may have been surprised from the positive impact of recent tax policy. However, this remains to be seen if the economy develops too much exuberance.

Our belief is that the Fed will move reasonably to “normalize” rates, controlling inflation with measured hikes, and not react with knee-jerk moves provoking panic or fear.
 
Purpose-driven investing, alongside constructing well diversified portfolios, has and remains the best defense of investment portfolios for volatile markets. While diversification never guarantees success or prevents loss, we strongly believe in this very important step of our prudent process.

We take very seriously our fiduciary role in practicing good stewardship never allowing fear to be the driver of our process. With 2017 being the year that skirted volatility and a historical anomaly, we anticipate 2018 is likely to provide a return to more normal levels of volatility.

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely. 

Susan Willett is the director of trust services and oversees all aspects of trust administration for Old North State Trust, LLC. Old North State Trust, a North Carolina chartered trust company, provides: asset management services; income, estate and trust tax consulting; retirement planning and administration; and trustee and estate services to both individuals and businesses. Old North State Trust professionals have many years of experience and for over a decade have assisted clients in identifying and reaching their financial goals. For more information, visit www.oldnorthstatetrust.com or call 910-399-5470.