Corporate earnings have surged year over year. The stock market is near an all-time high. So too are political tensions in the US. The US economic landscape appears strong. Yet, investors are extremely skeptical of financial markets. What does all of this mean? Is it the beginning of a major correction or just a “buy the dip” kind of pullback? Large US equity market declines have almost exclusively occurred in and around economic slowdowns. That is not the case today. In my opinion, the declines are still within the context of a normal correction and I have highlighted on several occasions that we expected to see an increase in volatility ahead of the mid-term elections, which are now less than one month away.
History has repeatedly shown that weakness ahead of mid-term elections is a buying opportunity for those investors with a reasonable time horizon. The worst two quarters of the four-year Presidential Cycle are the second and third quarters of the mid-term year. Ironically, in 2018 both the second and third quarters were positive.
We are now in the part of the calendar where the presidential cycle’s seasonal trends have historically transitioned from its two worst quarters to its two best. Dating back to 1946, the S&P 500 has advanced by an average of 7.51% and 6.61% respectively during the fourth quarter of the mid-term year and the first quarter of the following year. (source: Clark Capital Management)
Ultimately, it is “time in the market” not “timing the market. You may recall that the S&P 500 hit an all-time high on 1/26/18 only to tumble 10.2% by 2/8/18. From that point the market regained all of the decline to reach a new all-time high on 9/20/18, some 2% higher than the previous all-time high. By not over-reacting to that downturn, we allowed your portfolio to participate in the rebound.
As in the past, in the midst of this market volatility, we remain focused on your long-term goals and objectives. We continue to focus on balancing the risk and return potential in your portfolio and will make any appropriate adjustments as conditions evolve.
Please call us if you have any questions or concerns.
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