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Posted on October 29, 2018

Weekly Market Commentary October 29, 2018

Market Commentary

The S&P 500 briefly declined more than 10% from its high, set on September 21, 2018, before rallying slightly. The “correction” has come during a period of economic strength and healthy profit margins. A number of other major indexes are now in a “correction,” as they have declined more than 10%.

Last week, the S&P 500 dropped 3.9% and is down 8.8% for the quarter. Global stocks also dropped last week as the MSCI ACWI sank 3.8%. Bonds benefited from the slide in stocks. The Bloomberg BarCap Aggregate Bond Index rose 0.5%.

Key Points for the Week

  • The S&P 500 has fallen almost 10% from its high reached in late September.
  • U.S. GDP grew an impressive 3.5% last quarter.
  • Stick to your plan during market declines and periods of uncertainty.

Five Tips for Surviving a Market Downturn

When times get tough, we turn to our five keys to surviving a market downturn. They offer a guide to weathering declines like the one we have seen recently. A summary of our views and a link to the full version published last week is included below.

  1. Keep the Fundamentals Foremost

The fundamentals remain strong for investors. As GDP data indicates, the U.S. economy continues to hum along, and corporations continue to generate excellent profits.

  1. Know the Cause of the Downturn

This downturn seems more the product of uncertainty in many areas than a tangible risk in any particular area. We see the following as key issues raising uncertainty and contributing to the downturn.

  • Trade: Chinese trade negotiations have stalled, and the tariffs are affecting Chinese
    • economic growth and some corporate results.
  • Slowing economy: The U.S. economy is slowing slightly, and investors are uncertain
    • that trend will continue in 2019.
  • Rate increases: Investors are uncertain if the Federal Reserve will keep raising rates in
    • a slowing economy, potentially leading to a recession.
  • Corporate earnings: A fairly small number of high-profile companies have missed
    • results or guided expectations lower, raising the uncertainty associated with equity
  1. Volatility is Like Grapes — It Comes in Clusters

Once markets become volatile, they tend to stay volatile for a while. Get used to these larger swings.

  1. Eliminate “Points” and “Dollars” from Your Vocabulary

Think in percentages, not points or dollars. A decline of 600 points in the Dow doesn’t mean nearly as much as it used to. Investors often talk about gains in percentages but declines in terms of dollars. As the market has gone up, your portfolio has likely grown. You may be experiencing a slightly larger loss in terms of dollars for the simple reason that you are wealthier than you used to be.

  1. If You’re Going to Make any Changes, Be Strategic About Them

Please, please consult your advisor before making changes to your portfolio and make sure any changes fit into your plan.

Click here for full version

Economy

U.S. third quarter GDP was released last week showing a seasonally and inflation-adjusted annual rate of 3.5%, which beat expectations of 3.4%. Consumer spending, which accounts for two-thirds of GDP, grew by a whopping 4%.

The only weaknesses in the strong report were business investment and trade. Business investment only grew at 0.8%, and the trade deficit widened as firms likely increased orders from China in advance of tariffs being implemented.

Fun Story of the Week

‘Gold Diggin’ Dog Pretends To Be a Hungry Stray

A dog named Princess has been accused by her owner of “gold diggin’” at McDonald’s. Betsy Reyes, Princess’s owner, says Princess has been caught numerous times escaping her home and heading to the local McDonald’s. Pretending to be a hungry stray, Princess guilts people into feeding her hamburgers. Reyes has asked people to quit feeding her dog.