Previously, we blogged about possible seasonal weakness heading into September/October. The possible came to pass, with the stock market trading in an unsettled fashion. Volatility has been high as investors weigh the effects of rising interest rates, tariffs and potentially slowing global growth against the backdrop of corporate earnings season. Investors don’t like uncertainty, and the increased number of factors that could cause trouble has not gone over well on Wall Street.
The good news? The underlying economy remains strong. Wage growth is solid, though the pace of increase could be a concern (inflationary), which we’re watching. Corporate profits had a very good 3Q, with 80% of the publicly traded companies exceeding Q3 estimates.
The markets are trying to digest rising interest rates, and so far it’s been orderly—but we expect volatility to remain high over the next 18 months as interest rates normalize back to historical levels. Current fear gauges are also starting to show excessive levels—which is a contrarian good thing for the markets. So, fundamentally, these elements should help stocks in the coming months.
Finally, a word on politics. As you know we typically stay away from political discussions, wading in if/when it relates directly to the markets and your accounts. Clients are asking us about the impact, if any, from the Supreme Court process, upcoming midterm elections and/or the White House. So far, little if any impact.
We use the following analogy: The markets are like a well-conditioned dancer who depends on strong legs (corporate profits) and a stable dance surface (the economy). While the musical tune from one administration to another may change, merely affecting the dancer’s style, the markets should remain spry and upright as long as the economy and profits are stable and growing.
No matter your dance tune preference, we value your business, friendship and any questions and comments you have.