Opening Statement from the April 2018 Intelligent Investor 

Opening Statement from the April 2018 Intelligent Investor 

Originally published on April 5, 2018 (pre-market release)


As expected, on March 21 newly appointed Federal Reserve Chairman Powell announced that the Fed voted to raise short-term interest rates by 25 basis points, pushing rates up to the 1.50% to 1.75% range.

During the March meeting the Fed raised its 2019 estimate to three 25 basis point rate hikes, but kept the current three 25 basis point estimate for 2018 unchanged. This was a prudent move since it’s too early to know whether the economy will be strong enough to need four rate hikes in 2018.  We continue to believe short-term interest rates will be raised by at least 75 basis points in 2018 and at least by 50 basis points in 2019.

Two Stages of the Stock Market Correction

We have divided the current stock market correction into two stages (see the chart below). The first stage was due mainly to superficial events. First, on Friday, February 2 the BLS reported jobs data that beat expectations, raising the chance of three interest rate hikes rather than the previous estimate of two by Wall Street.

The following week the selloff escalated due to the confluence of margin calls, programmed trading and short selling. The low in the Dow for this the first stage of the correction was 23,360 on February 9. The market mounted a nice rally every day the following week, confirming...

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