Stick a Fork in It?

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Projected market volatility spikes in times of crisis then drops as fears subside. Current levels are below average, but the Fed’s path to normalization of rates may lead to more typical volatility levels.

The market soared yesterday. Does that mean we are in the clear when it comes to the recent bout of distasteful volatility? Nah. However, that should not be a negative for investors. Although the last few weeks have been extreme, volatility is normal. The new Fed chairman, Jerome Powell, stated that the Fed will remain alert but the Fed put is over. The sugary sweet high provided by Fed stimulus sated markets temporarily but true economic growth was missing from the recipe. So now we have higher economic growth, accelerating corporate earnings and in turn higher interest rates. Inflation is still reflating or normalizing and the Fed is committed to caution. The inflation numbers to be released tomorrow will likely confirm this path. Investors should be savoring a market backdrop where earnings growth - the fundamental driver of markets - has been upped from 9% to 18% for 2018 over the last six months. Just don’t expect volatility to go back to the artificially low levels complacent investors took for granted. Please watch the volatility index (VIX) on page 25 of the Global Perspectives™ Book.

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