I am sure many of you have heard already but yesterday we had two major events that have dominated the headlines.
The first being Hurricane Michael which was the third-most intense hurricane to make landfall on the United States. Our thoughts and prayers are with everyone affected by the storm.
The second being the Stock Market Selloff. Yesterday, the Dow Industrial Average closed down 831 points or (3.20%) and is down over 5% in the last 6 days. With such volatility, we want to touch on a few things and let you know our position moving forward.
At the beginning of the year, our call for the 2018 Stock Market was an 8-9% positive return and we still feel this is achievable.
Selloff Thoughts - Stocks suffered their biggest one-day decline since February, as a combination of higher bond yields, U.S./China tensions, nervousness over the upcoming midterm elections, six straight months of gains, and worries about peak margins this earnings season all added up to a big sell-off. We understand these bouts of volatility are unsettling, and below are some of our thoughts on the selloff:
- Markets have been relatively calm - The S&P 500 had gone 74 consecutive days without a 1% move-the 10th longest streak in history. In other words, equity markets were wound tight and some type of volatility was likely.
- Market Pullbacks are normal - Pullbacks are normal. Even though stocks tend to average a 7-8% gain each year, they also tend to have three to four pullbacks each year (5-10% drops) and at least one 10-20% correction. We got both earlier this year but history tells us we may get more. Still, we see the potential for a year-end rally.
- Economy in Great Shape - The economy is in excellent shape. Consumer spending is growing solidly, consumer and business confidence is high, the job market is quite strong, manufacturing surveys are near record levels, and by historical standards, interest rates are still fairly low.
- Corporate Profits Strong – Tariff Impact Minimal - Corporate profits remain quite strong. Consensus expects a 21% increase in S&P 500 earnings per share in Q3, supported by strong U.S. economic growth and tax cuts. Over the past month, forward earnings estimates have continued to rise and the tariff impact has been minimal to date. Also, repatriation has given companies a huge cash hoard that they may invest in growth or return to shareholders. This is all positive for market growth.
YTD Market Index Returns as of 10/10/2018
Dow Industrial Average
US Aggregate Bond Index
As always, if you have any questions or if you would just like to chat, please do not hesitate to reach out to us.