Broker Check

Wealth & Pension Services Group
William Kring, CFP® 
CEO & Chief Investment Officer

How Quickly Things Change

October 25, 2018

We just finished a great quarter that brought the market back above January highs, only to see October (so far) ruin a decent year and take the major averages negative again for 2018. Unfortunately, there has been no safe hiding, as all types of stocks and bonds moved down in similar fashion.

Yes, this slide has been painful. And as usual, it came without great expectation.  But rest assured, this is normal.

During significant market movement, everyone is looking for the “one thing” that initiated the selling. Sometimes it seems obvious, sometimes not. I would put this correction somewhere in the middle. It wasn’t one thing, but likely a few things, that together broke the market’s upward momentum.  Count trade tensions, the Fed’s stance on the pace of rate increases, higher yields as an alternative to stocks, a strong dollar, forthcoming elections, or inflation from tight labor and tariffs as suspects.

Another underlying factor may be the quiet period for corporations prior to earnings, and the required pause of company stock buybacks. There is no denying U.S. corporations have been major buyers of their own stocks; by some accounts over 20% of shares traded. Mix these factors together at the same point in time, and you may have the answer as to “why” this time.  Rather than the market climbing the proverbial “wall of worry”, it appears the wall just looked too high.  

So, where do we go from here? Well, the good news is that we are smack in the middle of earnings season. Every day we get a fresh report card on how companies are doing. It’s still early, but so far, earnings and sales have met or exceeded expectations, on average. Given that PE ratios have now adjusted, it’s hard to say valuations are a concern. Sure, earnings could be better, but they could always be better.  If we can clear the trade tensions, and finish with a good earnings season, we should have a decent runway again for gains. The expectation back in January was for small to moderate returns this year. A year-end rally can get us back, and a revision to the mean for beaten-down international stocks will help tremendously. Once things settle, we should have an opportunity to reposition holdings and asset allocation, if needed.

As always, please call or write with any questions for concerns.


William Kring, CFP®
CEO & Chief Investment Officer

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