November 2018 Market Letter

Not so Happy Halloween… all tricks, no treats…

As I wrote a couple weeks ago, we’re in the midst of a long-awaited correction in the stock market. October will doubtless end up being the worst month since the tumultuous financial crisis of 2008. All major averages swooned badly, and many portfolios experienced double digit losses. Markets always go down much more quickly than they go up, and the swiftness of October’s deepening trough has been a bit alarming. Volatility has increased, but not to overly dramatic levels. We may need to see more pain before calmer waters appear.

I don’t want to sound like the proverbial broken record, but corrections are perfectly normal. Repricing simply occurs from time to time on Wall Street. Unfortunately, selling tends to beget more selling due to electronic algorithm trading programs and margin calls. As long-term investors, we have to remain patient through these thankfully infrequent cycles, scary though they may be. None of us will ever need 100% of our money at once, and we must not heed the rumbles of cognitive dissonance.

It’s difficult to pin this correction onto one specific reason. Frankly, there seem to be several:

  1. Nervousness about the Federal Reserve raising interest rates again in December
  2. Imposition of stiff tariffs, particularly between China and the United States
  3. Anxiety about the mid-term elections
  4. Poor performance in international markets
  5. Sizable run-ups in tech stocks
  6. Brexit and the potential slowing down of the Chinese economy
  7. Greater attention being paid to America’s rising deficit

We’ll know about election results next week, and that piece of uncertainty will be over. However, the others should still be on the table, and the election may spur new angst. The markets may feel a bit like 2008, but the overall divisiveness in our country resembles 1968. The concentric circles simply repeat themselves.

However, as far as stocks are concerned, I see little resemblance to the debacle of 2008. Ten years ago, banks were closing and the housing market was in a massive bubble. Corporate balance sheets were bloated with debt, and the entire world financial system was on the abyss of massive disaster. In 2018, banks, at least in the US, have never been stronger. Balance sheets are flush with cash. Earnings continue to be solid in most sectors, though very company specific. Consumers are spending money. Yes, we’ve been in a tailspin for the last three weeks, but there doesn’t seem to be significant structural damage to the economy.

Market repricing is honestly where we are right now. The price/earnings ratio, or P/E, went from a slightly elevated 16.5 at the beginning of the month to a sub-normal 14.9 this past Friday. Logically, that should begin to signal a buying opportunity at some point, and many metrics are quite oversold. We’ve had a “dead cat bounce” or two, but not the kind of capitulation that we need for this correction to be over. Patience and antacids will be necessary for a while.

I have no idea when this phase will conclude, and neither does anyone else. Pundits have theories, but I’ve lived long enough to know that markets tend to act on their own. As the famous philosopher once said, “It will be over when it’s over.” In the meantime, it’s critical that we keep our wits about us. Now is a great time to discuss your scenario with us. RC, Kelley, and I are here to do everything from speaking logically to you about this correction to holding your hand if necessary. Making sure that your long-term plan is intact is always our first order of business.

Unexpected stock downturns just happen. They’re as much a part of the process as market upside. Our job is to calmly guide you through the storm. Please feel free to call or e-mail with any questions or thoughts that you have. It certainly doesn’t feel good out there right now, but this too shall pass. If I knew exactly when, I’d be working the state fair circuit guessing weights and ages.

Thanks as always for your continued trust and support. I look forward to hearing from you soon.

Sincerely,

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. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

 

Mid-October Market Letter

This rare mid-month missive will be brief and hopefully to the point. We’re in the midst of a mini-correction that I’ve been predicting would happen for quite some time. The stock market had a brutal week, shedding all gains for 2018. Volume was exceptionally heavy, but orderly. The major averages are now between 6 and 8% lower than their all-time highs from late September. Markets always go down far more quickly than they rise, and this decline is no exception.

Corrections, no matter how steep or swift, are never pleasant. However, they happen occasionally and are cleansing overall for the market. I cannot tell you with any clarity how long this one will last or how much deeper it might be. I do, however, feel that there is absolutely no need to panic. The stock market may indeed be in a later portion of the nine year bull market cycle, but positive markets traditionally do not end when corporate earnings are strong. Some of the metrics are changing – higher interest rates and fuel costs, fallout from tariffs, angst over the mid-term elections. As I’ve mentioned countless times in the past, Wall Street hates uncertainty. The VIX, or Volatility Index, is embodying this nervousness as we speak. But, as the famous philosopher once said, this too shall pass.

Where should we go as investors? I’m staying put with my portfolio because I’m refusing to listen to cognitive dissonance. If the trough extends, I’ll think about putting more money to work. That being said, we’re all different, and so we as a team want to be attentive to your needs.

Market corrections are a great time for portfolio review and investment goal focus. Please let us know if you’d like to chat. As a long-time advisor, I like to think about the positives that can stem from a downturn. One important item is that we may be able to productively harvest stock losses in non-retirement portfolios. This will allow us to offset gains from earlier in 2018, and perhaps create a multi-year deferred tax asset. We had little or no opportunity to cull last year. If the markets won’t give us performance per se, we can at least enhance your tax scenario. Secondly, there are some new products that can give equities exposure with protection against negativity. We can talk about them with you if you like.

The bottom line is to breathe. It’s not comfortable out there, but it’s normal and to be expected. All of us have survived much larger corrections before by staying patient. Hang in there… try not to pay too much attention to Chicken Little. Kelley, RC, and I look forward to hearing from you.

Sincerely,

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. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

October 2018 Market Letter

“Believe it or not, I’m walking on air… I never thought I could feel so free… Flying away on a wing and a prayer… Who could it be? Believe it or not, it’s just me…”

This is a stanza from the theme song of the 1980’s TV series, The Greatest American Hero. Joey Scarbury became a one-hit wonder with this tune, soon to be forgotten. More on Joey and others in a bit… let’s review what happened in September:

  1. Hurricane Florence caused record flooding in the Carolinas.
  2. The Federal Reserve raised interest rates another ¼ point, causing the 10 year Treasury to inch above 3%.
  3. The price of crude oil rose to its highest levels of 2018, making fuels more expensive.
  4. Political partisanship reached a new low during the televised hearing of would-be Supreme Court Justice Brett Kavanaugh.
  5. Tariff impositions by the US and many other countries escalated.
  6. Mid-term election advertising and rhetoric began to significantly ramp up.
  7. The Cleveland Browns won a football game for the first time since December 2016.

Despite all of these unusual (and mostly negative other than the Browns) occurrences, the stock market held its own last month. The Dow and S & P 500 had small gains, while the NASDAQ fell slightly. Since September is historically a poor month, it’s gratifying to see equities holding on to 2018 modest performance. Interestingly enough, I’ve heard more folks talking about a correction in the near term than at any time in the past couple years. However, markets historically climb the proverbial walls or worry during bull cycles, and that’s simply where we appear to be at the moment. The only bubble in equities that I see is in cannabis related issues. Other than that very small sector, the market has rewarded companies with strong earnings and guidance, and punished those with weaker outlooks.

October is the month where the most severe short-term corrections have been witnessed. Yes, we’re long overdue statistically for one, but that doesn’t mean that a trough is imminent. The American economy keeps perking along in the face of negative headwinds. Where things will shake out after the mid-terms is anyone’s guess, but Wall Street has turned the other cheek so far.

Lynne and I will get a chance to hear firsthand how folks in Eastern Europe feel about what’s happening here in the States. We’re leaving Thursday for eleven days in Hungary, Austria, and Germany. These countries are quite different other than geographic proximity. They have dissimilar leadership, economies, and ways of life. At the very least, it will be a pleasure to sail the Danube and miss all of those uplifting political television ads.

Even while overseas, I’ll be closely monitoring the markets. If you have any questions or concerns that can’t wait until I return mid-month, please call Kelley King or RC Arseneau. Our trio is working extremely well together, and Kelley and RC are more than capable advisors. The transition continues to be smooth, and we’re excited about the team concept.

Now, back to Joey’s song… most of us can think of a great American hero. Recently deceased Senator John McCain was one, and so are the women who have spearheaded the MeToo movement. Given his rather egotistical performance at the United Nations last week, President Trump undoubtedly thinks that he’s THE one. But the TV series hero was actually a mild-mannered teacher who had the ability to fly. He was a common man with an uncommon talent. That’s the stuff of heroes in my book.

Stocks have been great American heroes as well, and our portfolios are the better for it. Let’s hope they continue to fly.

As always thanks for your continued trust and support. I look forward to talking with you soon.

Sincerely,

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. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.