Lindsey Report – October

For the better part of the past two months, equities (as measured by the S&P 500) have been trading in a rather narrow range. The all-time-high of 2190 was set in August, while the most recent low of 2125 was on 9/14. While there are only a few percentage points separating the high and low (range bound), equities were gyrating up and down throughout September (yahoo finance).

It would appear that the markets were/are looking for direction. As noted many times in the past, equity valuations over a longer period of time should mostly be a reflection of economic health and corporate profitability. However, in the short-term, markets have a tendency to overreact to news, which might alter forecasts or expectations.   It is often said that markets do not like uncertainty.

To that point, the domestic economy has been slowly plodding along since the Great Recession. While we have never experienced multiple quarters of robust growth (which one would anticipate following a deep recession), we have not experienced back-to-back negative quarters either. Thus far, 2016 looks to continue this trend: weak growth in the first half, but modest growth in the second (Bloomberg). Arguably, the economy has been, and continues to be, a source of “modest certainty” for the markets.

Of course, the markets have also been the benefactor of “reasonable certainty” from the Federal Reserve (Fed). First, the Fed has kept rates low for a long time, and secondly, they signaled that they would keep rates low. Although they have been considering rate increases for over a year, they have only done one (12/15): thus far, none in ’16 (AP).   When and if they do raise rates, we would anticipate a market reaction. In all likelihood, the short-term reaction will be negative even though the Fed’s justification for raising rates would be a strengthening economy.

However, the biggest “uncertainty” and the elephant-in-the-room, is the November 8th election. Yes, I know better than to discuss politics, so this is an observation. This election process and its build-up has been very different from anything that I’ve ever seen (where “different” is by no means a compliment). Now, add in that October has historically been one of the most volatile months for equities (Bloomberg), and it seems logical that we could see increasing, market uncertainty and likely short-term volatility in the coming weeks.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

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