As we enter March, it seems clear that 2018 is not going to be a repeat of 2017. Last year, the S&P 500 posted positive returns every month on a total return basis, and volatility was beyond subdued. However, after making strong gains throughout most of January this year, equity markets have now run into headwinds and February was the worst month for equities in two years. The S&P 500 Index ended February with a decline of -3.9 percent1. It would be nice to never have to suffer declines, but unfortunately that would also mean an investment strategy that would not generate any returns, since markets never give you something for nothing. It is also important to remember that the equity markets have rallied for an extended period (multiple years) and so they were ripe for a correction.

A combination of factors is causing consternation in the global markets including uncertainty at the Fed, the potential for higher interest rates and inflation, and now the potential for trade wars. On the last day of February, the new Fed Chair Jay Powell, delivered a generally upbeat assessment of the U.S. economy and his comments seem to have investors concerned that perhaps the Fed will raise rates faster in 2018 than markets were anticipating. In response to Powell’s remarks, equities declined sharply. This is an example of good news on the economy being perceived as potentially bad news for the equity markets since a strong economy could raise the specter of rising inflation, causing the Fed to raise interest rates too fast, thereby choking off future economic growth. Then, in the first days of March, President Trump began making public statements about imposing tariffs on imported steel and aluminum. These remarks took the markets by surprise and equities declined again, this time over fears of a potential trade war.