The S&P500 went down 9 days in a row for the first time in about 36 years. Sounds dire, until you realize that it only went down 3% over that period. The market pullback has been very methodical primarily caused by three main uncertainties; Oil, The Election & The Fed.
Oil has retreated due to a strong increase in inventories and the inability for producing countries to keep it above $50 a barrel by adjusting supply. The Fed has been trying to determine when they will hike interest rates ever since the first move was made in December last year. The market typically moves based on a variance from expectations. This is not the case now as the market has priced in about an 80% chance of a rate hike this December. Most economic indicators are pointing to better economic output going forward and GDP, though still sluggish, is starting to show signs of some acceleration.
The bigger uncertainty is, of course, the election. From a market perspective only and without being political, a Trump win would create more uncertainty short term and a Clinton victory would be deemed status quo for the most part. The market likes political gridlock. If Trump wins and the republicans hold the house and the senate, one party may be in the position to force their agenda. If Clinton wins, it is not likely the democrat party will gain control of the house so gridlock will persist at some level.
A Trump win could cause a near term market reaction that we would consider a buying opportunity. Most market pundits believe that the republican agenda would be better for business and the U.S. Economy in time. Tax reduction and reduced regulation would be beneficial to corporate earnings and growth. However, there is some concern about foreign trade policy and how disruptive it could be for a while.
So, what do you do? We remain focused on the underlying fundamentals which are constructive. The economy is still growing, corporate earnings are still improving, valuations are historically average and, there is plenty of liquidity that can come at the market as the current uncertainties subside. Bear markets do not develop in a time when there is a lack of excess. Valuations are not excessive and there is still plenty of skepticism that can drive markets higher over time. We remain bullish intermediate to longer term.
Short term; might have to hold on to your hat as the winds of uncertainty cause volatility near term. We continue to strongly believe that patience here will be rewarded. We believe any correction near term will simply create a better foundation to sustain the next market leg higher. Stay the course. Times like the present are when emotional decisions often mean regret in hindsight. Stay tuned to the Latest News section of our website. We will post additional commentary as necessary.