February 12, 2018 – Weekly Market Commentary


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The New York Times
What Is a Stock Market Correction?

Summary: A stock market correction is a 10% drop from a recent peak in the price of the stock market. A decline of this magnitude does not always mean that stocks are going to fall further. In fact, only two of the last twenty corrections ended up becoming bear markets, a decline of 20% or more from a recent peak. 


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Tal Kopan, Phil Mattingly, Deirdre Walsh – CNN
Trump Signs Massive Budget Deal After Congress Votes to Reopen Government

Summary: President Trump signed a budget deal which will keep the government running for the next two-years. Budget caps will be raised by $300 billion in the next two-years with the majority of the funding going towards defense spending ($165 billion). The bill also includes a $10 billion allocation to infrastructure, $2.9 billion for child care, and $3 billion to combat opioid and substance abuse.


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Ben Morris – BBC News
Bank of England Hints at Earlier and Larger Rate Rises

Summary: Bank of England policymakers kept interest rates unchanged but said that it is likely that rates will need to rise earlier and at a greater pace than previously expected. Analysts are now expecting a rate hike in May. Further hikes will likely be an effort to stay ahead of inflation as global growth grows and domestic wages continue to rise. 


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Jeff Cox – CNBC
Dudley: Market Drop is ‘small potatoes,’ Economy Still Strong, Rates Going Up

Summary: New York Fed President William Dudley said that the recent tumult in the markets has not changed the central bank’s view that the economy is likely to continue growing. Dudley said that interest rates will continue to rise because the global expansion is more durable and monetary policymakers will be able to remove accommodation. 


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Stephen Gandel – Bloomberg
Don’t Forget This Bull Market Hasn’t Been Correction-Proof

Summary: Last week’s market correction doesn’t look nearly as bad when you add some perspective. The selloff was the fifth correction during the current bull market and is far from the worst that the markets experienced. Markets nearly entered bear market territory, a decline of 20% from recent highs, in 2011 during the European debt crisis and fell more than 12% and 13% respectively in 2015 and 2016 before recovering. The correction could still get worse, but long-term investors should avoid the short-term headlines and remember that we have been here before. 


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Liz Ann Sonders, Jeffrey Kleintop, Brad Sorensen – Charles Schwab
Volatility… It’s Back!

Summary: Volatility came back with a vengeance last week but the recent pullback is looking more like a pause in the bull market rather than a hard stop. Rising rates were a precipitating factor in triggering the selloff. The Schwab team expects rates to continue rising, but the spikes that were seen in inflation and rates last week are unlikely to be the norm this year. The biggest risk going forward may be excessive expectations. The economy is strong, but rosy projections may not be met which is sure to add more volatility to the markets. 


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Martin Small – Head of US iShares – BlackRock
Mind Your P’s and F’s: Don’t Confuse Leveraged ETPs and ETFs

Summary: Over 97% of the $5 trillion global exchange-traded product (ETP) market consists of exchange-traded funds (ETFs). There is also a small subset of ETPs that use financial engineering and leverage in an effort to magnify returns on different markets. Complex provisions involved with many ETPs are not intuitive or well-understood by many users of the products and often times there are significant discrepancies in terms of performance between the products. Be cautious when venturing into the leveraged ETP space and make sure you understand the risks that you are taking.





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