Kevin – Greetings, Kevin Coyle and John Finley, November 14th, market update. So, John we had an October decline which is not a great shock.
John – October’s the most volatile month on average and when there’s volatility, stocks tend to go down. And stocks around the world went down in October, not just the U.S., down about 7%.
In the U.S. value was down about four, and growth stocks were down about 9%.
Kevin -So, year to date, we’ve had a couple of drops of plus or minus 10%, it seems to be in a trading pattern. The comment you made earlier though, when you look at the net returns year to date, plus or minus 3%, a lot of that is the growth component of the market.
John – We still have large cap growth stocks leading the way, Amazon, Microsoft, Apple in particular, but for most of the other stocks are trading well below their all time high, 10%, even 20% below their all time high.
Kevin – So, some of the value managers that you talk to are seeing some opportunities-
John – Definitely. Yes, there’s cheap stocks out there to be had.
Kevin – We’re also seeing the same thing in the international emerging markets significantly.
John – Sure. Relative to the United States, valuations overseas are much more attractive.
Kevin – So, a diversified portfolio year to date is not going to be showing the numbers that a portfolio that’s concentrated in the index or concentrated in the growth stock area, because international emerging market’s down, value is down, bonds slightly down. So, you’re not going to see quite two to 3% across the portfolio structure, but you’re seeing more of the opportunity, at least the managers are saying this, that you want to run in the areas that haven’t seen the momentum.
The bond market, any comments there?
John – Still have a very flat treasury curve with the Fed on target to raise again in December, and probably a couple more times at least in 2019. Long end of the curve stays a little over 3% on the 10 year, which tells me that long term investors are not seeing inflation as a big risk right now.
Kevin – Post election, the market seems to have digested that well, having a divided house in Senate normally is a positive thing, in terms of capping spending perhaps. Any other thoughts there as we go into the new year?
John – Well, the economy is still very healthy, unemployment is still very low at 3.7%, the lowest it’s been in 50 years, growth world-wide is slowing a bit, China in particular, but still 3.7% is the estimate for next year world-wide. So, profitability in corporate America is still very, very healthy.
Kevin – So, maybe we get some positive news on the trade war front and tariffs if you will. So, stay the course. Until next time, enjoy.