The document provides an overview of the market perspective in September 2017. It notes that while the markets have exhibited little volatility since the 2016 election, corrections of over 5% are actually quite common within a given year. The document also discusses factors like leading economic indicators and the current economic expansion that suggest a recession may not be imminent. It concludes by stating that most economists believe economic conditions remain reasonable, though ongoing monitoring of differences between corrections and bear markets is warranted.

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.
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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. 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. 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. 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. 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. 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. 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. 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.
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