FINANCIAL TIP FROM DAVID:
More trick than treat
In our discussion last month about the markets, we made mention of how historically the fourth quarter of the year is by far the markets best performer. What we did not emphasize is that this same quarter claims ownership to the month of October, historically one of the weirdest months when it comes to market performance. It was the month of October that started the last two major market downturns in 2001 and 2007. It also gave us the massive one-day drop in 1987. We now know that 2000 and 2007 were overdue for negative performance due to valuations of stocks being so high, we also know that despite the huge drop in 1987, the market finished up for the year. So what does this all mean with regards to 2018 and where we are headed for the balance of the year?
Let’s first discuss some of the issues/concerns that have weighed on markets. We have made mention of rising interest rates and their impacts many times in this space. They are one of the main culprits in understanding our current market volatility. The ten-year treasury, a benchmark metric gauging market headwinds, has risen above 3.1%. Many analyst and quantitative trading systems, computer driven trades, viewed the 3% level as the point where fixed income investments, CDs and bonds, would become competition for capital invested in stocks, thus leading to them selling stocks and creating downward pressure in markets. Then we have the constant turmoil created by the trade and tariff disputes that do not seem to have an end in sight. Another factor is the projected slowdown in growth thru the end of 2019. Most economist predict that our current GDP growth rates of 3.5% will slow to 1.9% by the end of 2019 as the boost from tax cuts will wane. These are all valid reasons for the market to experience the issues that it has as we close in on the end of October.
However, most analysts, at the time of this writing view the activity of October as simply creating an oversold condition. Some even attribute it the upcoming election as the market has always disliked uncertainty, which our current political situation certainly qualifies as that. We wish we knew exactly where markets were headed but since no one does, we have to rely on basic fundamentals of earnings, profits, and growth. All of which still point to an upward environment for stocks, most believe at least thru 2019. Should that sentiment change we will certainly look to make adjustments accordingly.