Volatility was strangely absent from equity markets throughout most
of 2017. But the first quarter of 2018 provided a healthy reminder that
volatility didn’t disappear. Global equity markets saw sudden and sharp
drops in late January and early February, only to partially recover by the
end of March. Large-cap stocks in the S&P 500 Index lost 0.8% in the first
quarter. Stocks of smaller companies, represented by the S&P SmallCap
600 Index, managed to finish with a small gain of +0.6% despite the
heightened volatility.

Market Indices Q1 2018

While economic news was mostly good, international stock markets also experienced negative returns and significantly higher volatility. The MSCI Europe, Australasia, and Far East (EAFE) Index lost 1.5% for the first quarter.

Bonds also had a tough quarter with interest rates rising for much of it.
The Barclays U.S. Aggregate Bond Index lost 1.5% over the first three
months of 2018. The Federal Reserve seems increasingly focused on
signs of modestly higher inflation as the economy continues to pick up
steam in the U.S. and abroad.

The Financial Engines perspective.

It was easy to be complacent for much of the last year. Markets mostly
went up, and volatility was near historic lows. But of course, this isn’t how
markets normally behave. The first quarter provided a stark reminder
that risk in financial markets is never far away. However, risk also
creates opportunity, and achieving an appropriate balance of risk and
opportunity is what investing is all about.

At Financial Engines, we structure your portfolio to seek expected returns
while lessening potential downside. As market conditions shift and evolve,
we update your investment allocation to help keep you on track.

Have questions?

Call one of our advisors. We’re here to help.


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