January provided a reminder that markets go in both directions. The equity markets dropped and seemed more volatile than they have for many months. While the bears are licking their chops, markets typically have a correction similar to this every seven months or so. Whether this is anything more than a typical correction remains to be seen. The economy seems to be on track to continue its slow recovery. The market has climbed a wall of worry for several years and we do not seem to be facing any new insurmountable issues right now.
The beleaguered bond and commodity markets showed glimmers of recovery the same month that stocks struggled. While stocks were overbought and due for a correction, bonds and commodities were oversold and due for a bounce. Bonds may have positive returns from here but the upside still seems quite limited.
Where the year goes is unknown, but we expect a bumpy road and the potential for stocks to remain a viable long term way to beat inflation. Markets remain unpredictable in the short run, so…we suggest a diversified portfolio is the best way to participate in markets but limit your risk.
By Ted Schwartz, CFP©