October Volatility Update: Near-Term Caution, But Looking for Opportunity
We wanted to give you a brief update on your investments since our last client letter to you.
As you might recall, we took risk down in your portfolio(s) in August. Since then, we have made some further adjustments to become more defensive.
Market volatility has returned, and prices have corrected accordingly, particularly in equities. Concern has grown that the Fed will hike interest rates further in an effort to constrict economic recovery and asset prices. Growth overseas is increasingly problematic, whether you look at China with trade and leverage issues or Europe with trade, Brexit, and the Italian budget. Throw in seasonality (August through October have often been difficult months for markets), and it is not a complete surprise that markets are jittery.
So why not be completely bearish?
- Corporate earnings in the US continue to show strong growth.
- Although the S&P 500 is up for the year, less than half of the stocks in the index have actually posted positive gains. In many cases, stocks got cheaper even though earnings grew.
- Credit markets have been much calmer than the recent volatility in equity markets. There exist lots of fear about worse credit. However, the reality is that corporate fundamentals, for the most part, remain solid.
We continue to monitor the markets for signs of calming and investment opportunities. In the meantime, we wait.