DuPont Wealth Solutions February 2018

WHAT’S THE EXPLANATION? In a sense, the markets are like baking a cake. If you’ve ever made a cake from scratch, you know the list of ingredients is fairly long. Flour and sugar, baking soda and salt, eggs and milk, oil and vanilla, and any of another half-dozen things.

That’s complicated enough, but as any chemist would tell you, we’ve only just scratched the surface. Here’s what really goes into a cake: hydrogen, carbon, oxygen, nitrogen, sulfur, sodium, potassium, magnesium, molybdenum, manganese, and more — all in the correct proportions, too, or else you just get a mess.

The markets are like that cake — formed by hundreds, perhaps thousands, of moving parts, decisions, stories, and most of all, people. So, in this analogy, the major news events that occur in any given year aren’t even the sugar or the salt. They’re the sulfur and selenium. They’re just a few elements in a giant bowl filled to the brim. WHY DID THE MARKETS GO UP IN 2017? So, what are some of the major elements that did move the markets in 2017?

Expectation is one. From the beginning of the year, the expectation of fewer regulations and lower taxes has been a major source of enthusiasm, and both expectations were rewarded.

Economic growth is another. The economy has been growing slowly but steadily over the past several years, and progress continued in 2017. The unemployment rate ended at 4.1% for the year, a 17-year low. Wages increased for many workers, and many corporations reported strong earnings throughout the year, causing valuations in most sectors to climb. Sheer momentum was also likely a factor. FOMO, or the fear of missing out, is always a strong motivator, and as the markets climb, more and more people want to hop on board. SOWHAT’S THE TAKEAWAY FROM ALL THIS? Last year showed us the markets aren’t a weather vane for any set of morals, political views, philosophies, or breaking news. History has repeatedly demonstrated that the markets are relatively unaffected by who the president is, which political party is in power, or how the winds of cultural change blow. In a more modern sense, the markets are far too large to be moved by anyone’s tweets or viral YouTube video. In a way, that’s a comforting thought. And it’s a further example of why we must avoid assigning narratives to the markets and then making decisions based on those narratives. Throughout 2017, many pundits kept trying to pick this event or that event as the straw that would break the camel’s back. I imagine many investors spent a lot of time searching for clues as to when the next correction would occur and missed out on opportunities for growth. That’s certainly been the case for this entire bull market — one of the longest in history. It’s a bull market that many investors have failed to take advantage of. (Per a survey by Gallup, only 52% of Americans report owning stock today, compared to 65% back in 2007.) ⁶ Of course, it’s also possible to make the opposite mistake: Assume that good news, whether political or economic, will continue to drive the markets up. Nothing lasts forever, including bull markets. It’s crucial that we avoid becoming irrationally exuberant, taking on more and more risk to chase higher returns. Investors who do that often make simplistic decisions based on specific news stories or trends that maybe aren’t as important as they appear.

Which brings us to the final part of this article:

THE 2018 MARKET OUTLOOK There’s no crystal ball for investing, and it’s impossible to truly know which elements will affect the markets most in 2018. Still, here are some of the trends we’ll be keeping an eye on:

• Will lower taxes mean corporate earnings continue to grow? • Will the Mueller probe into President Trump’s campaign lead to any executive shakeup in the White House? (This only matters if it leads to policy changes that could impact the markets.)

• Who will control Congress after the 2018 midterm elections? (Again, this only matters so far as it affects policy down the road.) • Many states are set to raise minimum wages in 2018. Will this lead to a rise in consumer spending?

At the moment, it seems reasonable to expect a kind of “Goldilocks economy” in 2018, in which economic growth is neither hot nor cold, but moderate. Again, we’re not going to make investment bets based on any storylines, nor are we going to react emotionally to future developments. Instead, we’ll continue to remember that the markets are large, complex institutions. We’ll continue to remember why we invest, which is to help you reach the specific goals you’ve set for your finances and your life. And we’ll continue to stick to our long-term strategy, which is designed to look beyond the headlines. HERE IS TO A PROSPEROUS 2018! One last thing: As you know, there’s no better time to plan your year than now. To that end, I’d love to sit down with you and plan for the months ahead. We can review your current strategy and portfolio. Do we need to make changes? Are you still on track to reach your goals? This is the only storyline that matters.

So please give me a call at 614.408.0004. We’ll set up a time to talk, and together, we’ll make 2018 exactly what you want it to be. On behalf of all of us here at DuPont Wealth Solutions, we hope you had a great 2017! Here’s to an even better year to come. Sources 1.“S&P 500 Historical Data,”https://www.investing.com/indices/us-spx-500-historical-data 2.DanielleWiener-Bronner,“Market experts hopeful for another strong year for stocks,”CNN Money,http://money.cnn.com/2017/12/31/investing/stocks-week-ahead-2018-predictions/index.html.

3.Ben Carlson,“How markets reacted to geopolitical crises,”The EconomicTimes,April 13,2017. http://economictimes.indiatimes.com/markets/stocks/news/how-markets-reacted-to-geopolitical-crises/articleshow/58158842.cms 4. Jethro Mullen, Ivana Kottsaova,Patrick Gillespie,“Dow plunges over 600 points as U.K. ‘earthquake’ crushes global markets,”CNN Money, June 24,2016.http://money.cnn.com/2016/06/23/investing/eu-referendum-markets/index.html?iid=EL 5.Matt Egan,“Stocks have never been higher,”CNN Money, July 12,2016.http://money.cnn.com/2016/07/12/investing/dow-stock-new-high-record/index.html 6.“Just over half ofAmericans own stocks,matching record low,”Gallup,April 20,2016.http://news.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx

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