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February 2018 Special Update:


In our annual outlook we were expecting a 10% downturn at some point in 2018. However, we thought it would come later in the year as we got closer to the mid-term elections. Well, here it is. We have not seen this kind of volatility in a while. See the chart below. As of this morning, we expect the VIX to surpass 50 on the chart below. What does this mean? Simply put, the bull market is not over. This downturn is much needed and the sell-off is near its peak. The economy is running well, manufacturing levels are running great, the consumer is not tired of spending, and everyone just received a tax cut. These are not indicators of a falling market. In addition, the majority of companies are beating their estimates, raising guidance, and giving bonuses to employees. If major corporations were panicked, they would be hoarding cash, not giving it away.

So why the drop? Rates have risen too far and too fast. Yesterday, we finally saw a significant drop in rates. With the 10 year Treasury yield still ahead of where it was a year ago, the bull market is still intact. I would be more concerned if the 10 yr Treasury yield were lower than a year ago, as it may indicate most are worried about the economy and want the guarantee of the US Government. As we said before, the biggest risk with the market is rising rates and the Fed.

At this point in time there is still liquidity in the market and this correction is much needed before the bull market takes the next leg up. Corporations are going to make more money in 2018 than 2017, and they are going to spend more which is going to help the consumer. I would take this opportunity to remind you there has been nearly 100 of these corrections in the last 100 years. This time is not any different.

Paul Sullivan, CPA, IAR
Chris Bailey, CPA, IAR




Sullivan & Company, CPAs | 4709 Montgomery Lane | Bethesda, MD 20814 www.eSullivan.net | email: pSullivan@eSullivan.net | Connect With Me on Linkedin

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