Today's post is from Brian McCormick, manager of Commonwealth's Investment Management and Research team.

Today's post is from Peter Essele, manager of Commonwealth's Investment Management and Research team.

Today’s post comes from Anu Gaggar of Commonwealth’s Investment Research team. Take it away, Anu! —Brad

The political reaction to the tax reform bill that was recently passed has grown more favorable over time. Initially, people appeared skeptical. But now that lower withholding rates are actually showing up in paychecks, the sentiment is turning more positive. Economically, we are seeing the same thing. Consumer confidence is rising again, due at least in part to larger paychecks. That should also translate, over time, to faster growth as both people and businesses are increasingly willing and able to spend. The recent debt ceiling deal should also help economic growth, with hundreds of billions of dollars in additional spending. This kind of fiscal stimulus will certainly help growth accelerate this year.

The big economic news this week—now that the stock market has calmed down—is the apparent rise of inflation. In fact, inflation does appear to be on the rise, with both the Consumer Price Index (CPI) and the Producer Price Index (PPI) showing faster growth in the past 18 months, as you can see in the chart below. We will be using the CPI for the rest of the discussion, given the relatively short span of the PPI data, but note that the two series have been saying the same thing.

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?

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.

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.

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.

There is a market adage that states, “as goes January, so goes the year.” We certainly should hope this is the case for 2018, as January was another month of great stock market returns. The U.S. indices were up by 5 percent or more, while international markets—both developed and emerging—did the same. The news was not all good, of course, as markets pulled back at month's end. Given the strong gains up to that point, however, it looks likely to be just profit taking, rather than a harbinger of something worse.