February 2018 Monthly Outlook – Too Much of a Good Thing?

January 2018 proved to be one of the best starts to a year in the equity markets since 1997.  Fueled by the positive outlook for global economic growth, stock markets around the world posted positive results.

However, sometimes too much of a good thing can have consequences.

One of the consequences of improving economic growth is rising interest rates and inflation.  This can clearly be seen in the US 10yr Treasury which jumped from 2.40% on December 29,2017 to 2.84% as I am writing this outlook on February 2, 2018.   That is a huge move up in rates in just one month.  The bulk of that move came in the last 2 weeks of January 2018 and has led to a spike in volatility in the equity markets.

Growing investor confidence, positive momentum, and the fast start in January has gotten the equity markets a bit overheated and I expect February to see more volatility and a slight pullback in stocks.  My estimate is perhaps a 5% -10% pullback is likely over the near-term as the market digests the higher interest rate environment.

Another concern is the political disfunction in Washington DC.  The most recent short-term funding for the government ends on February 8th . Congress and the White House need to agree on a budget (not likely) or another short-term extension to keep the government open. On the heels of this, Washington must agree to increase the debt limit by early March 2018.  While the financial markets shrugged off the most recent government shutdown (January 19 – January 22, 2018), it will become less tolerant as time goes on.

Additionally, I am worried about potential US trade actions, such as a unilateral pull-out from NAFTA (North American Free Trade Agreement) or a trade war with China.  While I don’t expect either of these to occur, if they did it would damage the current global economic and financial expansion we are experiencing.

Longer-term, while the US economy has been growing for several years and is nearing its full potential, I believe it can continue to grow for the next 12-18 months based on historical expansionary cycles.


In summary, I expect to see higher volatility and perhaps a decline in the equity markets in February.  I expect this to be a short-term condition (1-2 months) as markets try to decipher the direction of interest rates and policy decisions in Washington and global Central Banks.  I continue to monitor your portfolio and will let you know if any adjustments are warranted.

Please call me if you have any questions on this report or your investments.  Please share this report with anyone you feel would benefit from the information.

February Calendar of Events   (comments and additions for future months are always welcome)

  • February is Black History Month.  Let’s all strive for understanding and acceptance for people of all colors, nationality, and religions.


February  2nd                   Groundhog Day – unfortunately Punxsutawney Phil saw his shadow so its 6 more weeks of winter

February  19th                  Mardi Gras

February 14th                  Valentine’s Day

February 19th                  Presidents Day


Sources:  BlackRock Investment Institute, State Street Global Advisors

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