March Madness!

March 28, 2018 | Vito Finucci


Dows Ugly March

“I call it the Donald Trump Diet. I’ve lost seven pounds because my liberal friends have stopped inviting me to dinner parties”


Famed Lawyer/Harvard Professor, Alan Dershowitz


Volatility is back, and it will probably stick around for a while.


Last week may have been the first day of Spring, but not for the US financial markets. The S&P 500 dropped 6%, and both it and the Dow Jones sank to four month lows by Friday’s close and it was the worst week in more than two years. In fact, the high of the week was right before the open on Monday. It has been the ugliest March in 38 years, and we still have four trading days to go.


We’ve been writing to expect more volatility in 2018 than we have had recently experienced. After a record setting period without as much as a 5% pullback, we’ve already had two 10% setbacks in 2018… and it’s not even the end of Q1 yet.


In fact, when researching for this piece, I was surprised to see that when you look at the biggest single day drops in the Dow Jones Industrial Index, four of them occurred in that unforgettable year of 2008, and four of them have occurred… in 2018! Have I already mentioned we aren’t even at the end of Q1 yet?


Here are the numbers:





Net Change

% Change



















































S&P Dow Jones Indices Website (



Investors who have piled in since the US election who have relied on Trump’s pro-business agenda were caught off guard this week twice, first with the tariffs against China (which raise the spectre of a global trade war), and secondly with an Omnibus budget bill which was frankly anything but conservative, and left many of his campaign promises not covered. This now leaves the door open for a backlash vote in the coming mid-terms in November. And oh yeah… add a hawkish Fed in as well.


Last week it wasn’t only confirmed with the US markets. On Friday, Asian markets were pounded with Japan’s Nikkei (down 4.5%), the Hong Kong (down 3.2%), and the Chinese markets (down 3.4%), all joining in, as did all European markets.


Quietly lost in the noise was the latest US jobs number, which once again came in pretty strong, as did the Durable Goods number.


The interesting part of the tariff issue last week to me, was that China already seemed to be ready for the Trump declaration and immediately announced their list of targeted industries. While some seemed obscure and irrelevant, one thing many of them had in common: many of those who would suffer the most form the heart of Trump’s political support, and put Ohio, Indiana, Wisconsin, Minnesota, The Dakotas, Nebraska, Iowa, Kansas, Oklahoma, and even Texas at risk, all of which are states where he won in during the 2016 election.


With respect to the Federal Reserve and rate increases: History shows that monetary tightening acts with long and variable lags. But eventually… it does have an impact on equity markets.


My view is that we needed some “cleansing” in markets to shake out some of the speculation. We have shifted from a monetary policy driven environment to a fiscal policy and earnings driven market, and any such shifts are bound to have “dislocations”.


Interest rates, as measured by the US 10 year treasury, were actually down last week, and that’s after a Fed increase of 0.25%. Consumer confidence is the highest since the late 1990’s, and corporations are positive again.


I remain bothered by the role being played by leveraged ETF’s and algorithmic trading in exaggerating market moves. They are trading tools, not long term investments, but they do make an impact short term.


The biggest concern remains a dysfunctional Washington, nothing new thanks to Mr. Trump, it’s been there for decades, but with daily media reporting it seems to be amplified. Tax cuts, deregulation, and infrastructure spending are all good for the economy, but the large deficits like those in the Omnibus bill, worry me.


And speaking of deficits, how about our once fair province of Ontario, or Canada itself… but less I digress.


Stay tuned,


Vito Finucci, B.COMM, CIM, FCSI

Vice President and Director, Portfolio Manager



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