After a couple weeks of stabilization, market volatility spiked again on Friday and is persisting again today. The weakest sector is technology and even the larger names are being hit due to global growth concerns. Defensive dividend paying stocks are holding up well including utilities which are actually up for the year. It seems to be a tale of two markets; the high valued bio technology, technology and internet or cloud stocks are being punished, not to mention the oil sector. However, other sectors especially dividend paying stocks are not only faring better but are reasonably valued. The broad S&P500 is now trading at less than historical average valuation.
We believe, maybe except for the overpriced momentum stocks, this is a normal correction and the market is already oversold based on fundamentals. We continue to believe staying the course now will be the right move if investors can avoid making emotional decisions. Corrections normally form a V bottom and you have to be there when it turns.
Fundamentals always win in time. The market action of late has not been due to a deterioration of underlying fundamentals. Interest rates remain low, earnings ex energy are still growing, valuations are not excessive and are in fact quite reasonable and, there is still plenty of liquidity to fuel the market. Though short term market swings can test one’s resolve, we remain optimistic intermediate and longer term and expect that patience will be rewarded.