After 2008 and during the height of Quantitative Easing, investors got used to bad economic news moving the markets up. The phrase “good news is good news and bad news is good news” became common lingo. Investors almost preferred bad news as they knew this would force the Federal Reserve to keep interest rates low and borrowing cheap. This kept bond yields at historic lows and forced investors to choose the higher relative value in the stock market.
Last Friday, the narrative shifted. Jobs reports for January 2018 beat expectations. The wage growth number especially stood out to investors, with average hourly earnings rising 2.9% since January 2017. This beat expectations and is the highest growth rate we have seen since the Great Recession. Good news became bad for the markets.
Bond markets reacted quickly, with the 10-year Treasury moving above a four year high above 2.8%. Rather than taking the good job numbers as a sign of strength in the economy, the stock market began selling off. As of the time of writing Monday afternoon, the markets remain slightly positive after a strong January.
Don’t panic with the selloff! We had very little volatility in 2017, and expected volatility to pick up this year. As you can see in the chart below, intra-year market drawdowns of less than 5% are not a common occurrence.
We will be vigilantly watching the markets, so please feel free to call us with any questions.
Maeve Beard serves as Senior Vice President, Director of Investment Support at Pinnacle Trust. You can reach her by calling the office at 601-957-0323 or by emailing her at firstname.lastname@example.org.