October was the worst month for the S&P 500 in seven years. For the Nasdaq, it was the worst month since November 2008.While October’s rout could portend a bear market, we see it as a bout of the heightened volatility that typically bookends an expansion.
Our still rosy view is supported by robust employment gains, rising wages and elevated business and consumer confidence. Household savings rates are relatively high indicating consumers could boost spending. Also, increased business capital expenditure is likely considering easing lending standards for commercial and industrial loans. Q3 earnings have been impressive and are likely to continue to grow at a 10% pace by end-2019. GDP has increased 5% year-on-year and is anticipated to continue above trend.
When rates even hint at choking growth, we’ll reevaluate. Near-term threats to our perspective include an all-out trade war with China and an unexpected spike in oil prices.
And watch out - a Democratic mid-term win could spark a further knee-jerk selloff. However, it would likely be short-lived as congress is unlikely to unravel Trump’s fiscal stimulus.
Nervous investors could consider shifting from growth stocks to value names – which historically have less volatility.
Weekly Update through November 2, 2018 The S&P 500 added 2.45%, even as the Dow Jones gained 2.36%, the Russell 2000 jumped 4.35%, and the Nasdaq added 2.66%.
As for US bonds, they declined -73bps.
Globally, the MSCI World Index gained 2.79% and the Barclays Global Aggregate Bond Index lost -57bps.
Month-end Update through end-October 2018 In October, the S&P 500 lost -6.84%, the Dow Jones declined -4.98%, the Russell 2000 dropped -10.86% and the Nasdaq lost -9.16%.
As for US bonds, they declined -79bps.
Globally, the MSCI World Index lost -7.32% and the Barclays Global Aggregate Bond Index declined -1.12%.
