Now that the markets have seemingly calmed down a bit—although there is certainly no guarantee that will remain the case—it is a good time to look at the past couple of weeks and see what lessons can be drawn. Prior to that point, we had not had a significant pullback in two years. Let’s face it, we are out of practice at watching the markets drop. So, what do we know now that we didn’t know two weeks ago?

This is a “special edition” of the market risk update. With the recent 10-percent pullback in U.S. markets—something we have not seen in years—the idea of market risk is a concern for many. When we do this analysis, we have to be aware of this but also keep in mind that, over time, longer-term models are better predictors than short-term results (however worrying). As such, we will look at each of our indicators and try to determine how they relate to recent experience. These special sections will be in italics.

We had only two major economic news releases last week, but the week ahead will be a busy one.

With the declines yesterday, U.S. markets are now in an official correction. Just to get the terminology straight, a “correction” means a 10-percent decline, while a "bear market" indicates a 20-percent decline. As of the close yesterday, the Dow was down 10.3 percent, and the S&P 500 was down 10.1 percent. The decline really accelerated at the end of the day—bringing the indices into official correction territory.

January’s data was quite good, and improvements in many areas suggest ongoing growth into 2018. Job growth picked back up, and both consumer and business confidence pushed higher. Fed policy remains stimulative, and recent increases in long-term rates steepened the yield curve—often a positive sign. Overall, this month’s data indicates that some of the weakness of the past couple of months may be passing and that the end of the cycle may not be as close as that data had suggested. Some trends do continue to be somewhat worrisome, however, so we’ll be keeping an eye on the economic risks.

Brad here. One of the major concerns about the economy over the next year or so is whether consumers will keep spending. As confident as they are, it seems they will certainly want to—but it is far less clear whether they will actually be able to. Andrew Kitchings of Commonwealth’s Asset Management group has put together a good analysis of something we need to pay attention to. Over to you, Andrew.

Last week was a big one for economic data, with four major reports. Despite the weaker tone of the data in recent weeks, the latest news was quite positive. All indicators either met or beat expectations—sometimes by a lot.

Wow, that was a bad week. After pushing to new high after new high, the market suddenly rolled over. We saw multi-hundred-point declines on several days, culminating in a 666-point drop in the Dow on Friday. This is reportedly the sixth-largest decline ever.

Today’s big news is the jobs report. It is the single most informative and important economic report there is. As such, it always gets a great deal of attention. In general, the news this month is quite good—but not perfect.

January was another great month for the markets. All three U.S. indices were up by at least 5 percent, as were international markets. There was a bit of a pullback at the end of the month, as interest rates moved up to levels we haven’t seen in years. Indeed, fixed income took a bit of a hit on these higher rates.