September 2017 Market Letter

“Well there’s flooding down in Texas… all the telephone lines are down… well there’s flooding down in Texas… all the telephone lines are down… and I’ve been trying to call my baby… Lord and I can’t get a single sound…”

There’s no more appropriate song for what’s happening in southeast Texas than this one from the late native Texan, Stevie Ray Vaughan. Hurricane Harvey has been a storm of biblical proportions. My thoughts and prayers go out to all those affected by the unprecedented rainfall. I couldn’t be more proud of the first responders and thousands of volunteers who have worked tirelessly to save lives. Unlike the major rifts occupying most of America’s daily life, the aftermath of Hurricane Harvey will depend on folks continuing to support each other in the months and years to come.

Aside from the tragic loss of life and displacement of so many Texans, there is an enormous economic toll. Houston is the country’s 4th largest city, and it has the second largest port. A sizable percentage of oil and gas exploration and refining is done in the region. It’s difficult to assess the total damage to the area, but it promises to eclipse Katrina. My feeling is that, as in New Orleans, many people will simply not come back to Houston, Beaumont, Corpus Christi, or other cities. It’s going to take quite a while before Houston regains its mojo.

Given the backdrop of Harvey along with increased tensions over North Korea and general Washington dysfunction, it’s amazing that the stock market hasn’t given up ground. Equities performance in August was infinitesimally positive, while fixed income faltered ever so slightly. On the stock front, technology, health care, and biotech were sector winners, while energy and telecom were laggards. The Volatility Index had its moments, with a large spike on the day that North Korea launched a missile over Japan. However, the VIX ended the month at an extremely calm level. The biggest gainer for August was gold, which made sense as a safe haven in the midst of endogenous turmoil.

According to Standard & Poor’s, August over the last 50 years has been a negative month for stock performance. September is actually the worst month for equities, and so we’ll see what lies ahead. At least Wall Street kept the good vibe going over the last 31 days. What would be possible reasons for momentum to stop?

The first one is that volume historically increases after Labor Day. Many traders take extended vacations in August, but they’ll be back at their desks this week. If selling stocks is done at a higher volume, it could mean extended downside for equities. Secondly, further rumblings with North Korea would appear to be a potentially sizable negative. Thirdly, losses from Hurricane Harvey could be larger and more time-consuming than expected. Finally, news (or lack thereof) from our nation’s capital could be a primary factor.

Congress gets back to work after the August recess, and they’ve got plenty to chew on. A continuing resolution needs to be passed to keep the government moving. The debt ceiling needs to be raised again. Any stoppage or suspension of vital activities would send a difficult message politically and economically. More than possibly any other agenda item, Wall Street is hitching its wagon to comprehensive tax reform. My feeling is that market risk would be to the upside if something substantive were to be passed. Lower corporate tax rates would lead to higher earnings for most companies. A decline in individual rates would put more money in American pockets, and hence be a catalyst for consumer spending. However, if it appears that, like health care, little or nothing gets accomplished, my feeling is that conditions would be ripe for a correction.

I remain cautiously optimistic about equities. Anecdotal information from my travels around the country is primarily solid. Company earnings and balance sheets remain historically strong. Minutes from the last Federal Reserve meeting were rather dovish, suggesting that there might not be a third hike in interest rates in 2017. The bottom line is that positive momentum continues to persist on Wall Street in the face of many crosscurrents. The resiliency of the market has been amazing. Let’s hope that the trend continues.

As always, I thank you for your confidence and trust. I look forward to hearing from you soon. Please keep the flood victims in your hearts.


Bill Schiffman

Registered Representative


The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.

Diversification cannot assure a profit or guarantee against a loss.