Local investment experts not alarmed by steep market declines

The steep declines in the stock markets in recent days have many investors nervous, but some local investment professionals said it is not time to panic.

They said the overheated markets were due for a reset of expectations. So while the markets have already shown more volatility in 2018 than all of last year, they said they still expect them to end the year higher than they started.

Lisa Erickson, senior vice president and head of the traditional investments group at U.S. Bank Wealth Management, said her bank's message to clients on Monday was to stay the course and focus on long-term goals while monitoring the situation closely.

"We don't see it has an immediate reason for concern," Erickson said.

The losses Monday in the Dow Jones industrial average and the S&P 500 Index moved them both into negative territory for 2018. All the constituents of the 30-member Dow Jones industrial average lost ground on Monday as the Dow fell more than 1,175 points on top of steep losses on Friday.

Two local stocks are on the Dow: Maplewood-based 3M Co., which closed at $231.44, down 5.6 percent; and Minnetonka-based UnitedHealth Group, which closed down 5.1 percent at $220.02.

"We are still in a secular bull market," said Craig Johnson, senior technical research analyst for Minneapolis-based Piper Jaffray, "but we are resetting the expectations for this secular market and more shakeout lies ahead."

Only two companies in the S&P 500 managed to scratch out gains on Monday, travel agent TripAdvisor Inc. from Needham, Mass., and household products company Church & Dwight of Ewing, N.J.

Johnson had predicted in December that the S&P 500 Index would finish 2018 at 2,850 and he's standing by that call. "It's just not going to [be] achieved in a linear manner."

Johnson said he doesn't think this current setback has run its course, and that there may be some more short-term pain until closer to the market's 200-day moving average. Johnson sees a lot of good companies with share prices above their 200-day moving averages (the market's average closing price over the preceding 200 days and a technical market indicator that says stocks trading above that mark are overvalued).

A return of more market volatility creates a challenge for investors and is why people pay up for active stock managers. "Investors have to be able to recognize good companies and good stocks and be able to make the distinction between the two," Johnson added.

"The excess is being worked off," Johnson said. "I think it's healthy. I think it's necessary. But this bull market does not die until we get to a 5 or 6 percent 10-year bond yield, and that's several years away."

She said that while some technical measures have been deteriorating, the fundamentals in the United States and globally remain solid, and in some ways the recent dips will mean a positive reset of sentiment measures.

"In a way the sentiment picture has actually improved," Erickson explained. "Complacency was too high. By having a correction and having that level of complacency go down, we actually think that creates a better sentiment."

Over the last three to five years investors have become used to the market climbing relatively steadily.

"It's more normal over the long-term course of the stock market to have moves up and down," Erickson said. "This seems especially new and concerning to people."