With the S&P 500 down just over three-percent this week thus far, markets have continued their choppy nature that started in October. Since the pullback began, the S&P 500 is down over -14% since the highs in October and in negative territory for the year.
The pullback began with a number of concerns over higher interest rates, the length of the economic expansion, a blackout period for corporate earnings, uncertainties over the mid-term elections, and trade concerns. While some of those issues have been resolved, others have continued to develop, such as worries over Chinese economic growth (irrespective of trade issues) and fears of the amount of lower quality debt that has been issued taking advantage of the Federal Reserve’s accommodative monetary policies.
While these concerns and others are certainly top of mind, we continue to believe that the U.S. economy is still on firm footing, and that the concerns mentioned above as they exist at this moment, are not enough to push the U.S. economy into recession. While we have conviction in our optimism (and will elaborate more in our upcoming 2019 Outlook that we will distribute in the coming weeks) our conviction is not as strong as it has been in recent years. To be more specific, given where we are in the business cycle and the general direction of Fed policy, it naturally becomes more challenging to predict how much further the expansion can continue. As such, have made several defensive moves in our discretionary portfolios thus far this year, and expect to continue this trend into next year. We will continue to monitor developments and make additional adjustments when we feel they are prudent.
With regards to the recent market volatility, we must remember that corrections, which are stock market declines that are greater than -10% but less than -20%, are not un usual. They tend to be brief in terms of their duration, with large moves in both directions thus making them difficult to time and profit from a trading perspective. We believe that the best thing to do while in a correction is to stay the course, and not make emotional decisions.
Corrections however are different from a traditional bear markets, which are declines greater than -20%. These tend to last longer and are usually associated with a recession (which is why gauging the likelihood of a recession is imperative). As mentioned above, we do not believe a recession is likely in the near term and will elaborate more in our upcoming 2019 Outlook that we will distribute in the coming weeks.
We will continue to monitor the developments and communicate as the situation evolves. If you have any questions, please don’t hesitate to reach out to your advisor.
About the Author: Joseph Karl, CFA, is head of research and senior portfolio manager with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email firstname.lastname@example.org.
Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Joseph Karl, CFA, is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
Any opinions are those of the author and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Holding investments for the long term does not insure a profitable outcome. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss.