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Lisa Santo: A sense of stability in the market

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To a great extent, I believe emotion is a driving force in the markets lately, with investors seemingly hanging on to every utterance from just about any source, and either buying or selling — heavily in many cases — depending on what they hear.

Last year was a period of extreme volatility for the market, with a seemingly never-ending series of wild swings up and down. Much of the volatility followed news regarding world events, and it continued through the end of the year as stocks had their worst December since 1931.

Right after Christmas the market began its current positive pattern and as of the beginning of March the Dow Jones Industrial Average was back in the high-25,000 range, even as it shook off random midday slides.

In the first quarter of 2019 traditional factors, such as corporate earnings, mattered considerably less than investor sentiment, even when it was announced that the 2.6 percent fourth quarter growth of 2018 was lower than previous quarters in 2018. A rather weak jobs report announced in early March appeared to impact investor optimism.

Still, there seems to be general agreement that the underlying economy is stable, with continued growth expected, even if the rate of growth diminishes somewhat each year. The result: even bad days in the market have been less severe than what seemed like chaos a few months ago. Morgan Stanley Wealth Management’s Chief Investment Officer Lisa Shalett writes that financial conditions, credit spreads, bank lending, U.S. labor markets, commodity prices, emerging market currencies and the yen remain at levels that are constructive for the forward outlook.

Supporting the case for another good year is the low unemployment rate, currently below 4%. You have to go back a long time to find a similar percentage and current figures indicate that job growth could still remain healthy because companies still need workers.

Many analysts expect corporate earnings growth to slow in 2019, though corporate balance sheets are expected to stay healthy and companies may be ready to add employees. Overall, there is plenty of good news to bolster confidence in the economy.

However, investors should recognize that financial market corrections are likely from time to time. To protect the family nest egg, diversification remains essential. A portfolio should show a mix of investments with an asset allocation capable of strategic shifts over time.

You may be able to limit negative exposure by owning a variety of low or noncorrelated asset classes, perhaps including some fixed-income securities. Over time, it is reasonable to expect interest rates to slowly trend higher, having some impact on investments, particularly bonds. It is important to make sure fixed-income assets, including the types of instruments, credit worthiness and maturities, can weather a continuing rise in interest rates.

Although economic growth in 2019 may still be strong, it may be hard to match 2018’s performance. The best strategy: ignore your emotion and gut reaction to the day-to-day fluctuations. Keep your goals in focus and don’t follow the crowd and succumb to emotions or rumors.

Lisa Santo, a resident of Sleepy Hollow, is a financial adviser with the Wealth Management Division of Morgan Stanley in Manhattan. She can be reached at lisa.santo@morganstanley.com.

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