CTWM Investment Committee: A Day to Reflect

All major US markets will be closed today for a national day of mourning in honor of George H.W. Bush. While it is meant to be a day to reflect on the life and legacy of our 41st president, let it also serve as a day to remind ourselves to take a breath after a challenging day of trading yesterday. 

The S&P 500 was down just over 3% yesterday due to new economic data that may indicate we might possibly be nearing a recession. The selloff was likely compounded due to technical factors and trading algorithms that do not necessarily consider a more holistic view of the fundamental data. While this may lead to more cautionary thinking around our outlook on market conditions, as long-term investors, we do not believe this warrants any dramatic changes to our portfolios. We have already been paring down risk in the portfolio over the last year and half with several of the updates we have made and have continued to be disciplined about keeping your equity allocation targets in line. 

Your bonds served their purpose in the portfolio yesterday, trading slightly higher. We expect they will continue to trade in this manner should we see continued heightened volatility going forward. 

The specific culprit behind yesterday’s market declines was an inverted yield curve. Said simply, that is where short-term bond interest rates are higher than long-term bond interest rates. An inverted curve shape has historically been a reliable indicator of economic recessions. For those who would like to discuss the meaning and impact of an inverted yield curve in more detail, please do not hesitate to give us a call. Otherwise, we look forward to discussing our thoughts around current market conditions in more detail at our upcoming meetings.