The stock market was rattled during the fourth quarter as investor sentiment over Fed tightening and tariff wars overshadowed solid economic data. The S&P 500 Total Return Index (“Index”) declined 13.5% for the fourth quarter. This decline erased positive market returns through the first three quarters of the year, resulting in the Index being down 4.4% for the full-year 2018.
Investors overreacted in the fourth quarter as our analysis suggests the economy remains on sound footing. Further, market corrections have often-times created favorable long-term investment opportunities through disruption and panic selling. Our belief is it essential to adhere to your investment philosophy and process during times of disruption. We must remember that the value of companies is based upon their ability to grow revenues and earnings over the long-term. Both the Fed tightening (i.e., increasing interest rates) and additional tariffs raised concerns about whether the U.S. economy will enter a recession. Our view is a U.S. recession is not on the horizon as evidenced by the strength of the U.S. economy, businesses and consumers.