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Market Perspective - September 2017


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Market Perspective - September 2017

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Market Perspective - September 2017

  1. 1. Market Perspective – September 2017 Experience Insight Impact Overview: With the lack of volatility the markets have exhibited since the U.S. presidential election, economists and market participants have ramped up the dialogue suggesting a sell-off is “right around the corner.” The activity certainly has been unusual, with very little in the way of downward moves. We would note that true “bear markets” are different than “corrections” with the former typically a result of economic activity (a recession for example, which is not expected in the near-term) and the latter to be expected in normal market cycles. 1
  2. 2. Stock Market Corrections Are Common, Though Temporary Experience Insight Impact 2 We must make a distinction between the consistent occurrence of intra-year sell-offs and keeping a long- term perspective. While large bear market associated sell-offs are usually accompanied by recessions, intra- year corrections in excess of 5% have been very common. The red dots above are the returns of intra-year lows, while the grey bars represent full-year returns. Since 1980, the markets dip virtually every year, though quite often end the year in positive territory (during the timeframe above, over 75% of the time). Source: JPMorgan, FactSet, Standard & Poor’s
  3. 3. Lack of Volatility in Markets Experience Insight Impact 3 Source: Bloomberg, Kopernik Global Investors 2017 has been a year with surprisingly low volatility. There have been only six days in which the market moved up or down more than 1%. The lowest figure in the previous 20 years was in 2006 with 29 days.
  4. 4. Bear Markets Always Follow Bull Markets (and Vice Versa) Experience Insight Impact 4 Source: Barron’s, Bloomberg, Yardeni Research Despite strong market performance, we must be mindful that no bull market lasts forever. We are currently in one of the longest bull markets in recent stock market history. Bear markets that follow are characterized by sharp declines and are often accompanied by recessions (which we do not forecast at this time).
  5. 5. Possible Recession Triggers Experience Insight Impact 5 Source: Barron’s As “bear markets go hand in hand with economic slowdowns,” any convincing signs of economic weakness may trigger a chain reaction sell-off in the markets. There could be a number of catalysts, but some of the current issues of interest to economists are listed above.
  6. 6. Current Expansion – Long But Weak Experience Insight Impact 6 Source: JPMorgan, BEA, NBER For more than a century, expansions as long as the current one (almost 100 months) have been rare. This invokes fear that the likelihood of a recession in the near future is high. However, the strength of the current expansion is unusually weak. Such weakness may justify a lengthier expansion than usual.
  7. 7. Leading Economic Indicators Still Have Room to Run Experience Insight Impact 7 Source: Bloomberg, Wasatch Advisors In the past, economic expansions typically continued several years after the Leading Economic Indicators (“LEI’s”) passed the previous highs. The LEI’s passed their previous peak only a few months ago.
  8. 8. Market Perspective – September 2017 Experience Insight Impact 8 Conclusion: Since the U.S. presidential election and the beginning of 2017, markets have been grinding higher without much volatility, raising fear about a possible sell-off in the near future. Currently, there are a number of issues that concern economists, however most believe economic conditions are still reasonable. Our process remains flexible and opportunistic as we are mindful of the differences between bear market sell-offs and “garden variety” corrections.
  9. 9. Disclaimer Experience Insight Impact Opinions expressed in this commentary may change as conditions warrant and is for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. Consider seeking advice from a professional before implementing any investing strategy. 9