September in the Rain?
July and August were good to stock investors after the Brexit dip. In the end, Q2 earnings came in mixed. That is; some stocks in each sector turned in good earnings and some stocks in each sector turned in not so good earnings. The market seemed to like most of it, and the S&P was up nearly 10% off the July low.
Then, this week, we hear from the Fed that the second interest rate hike is imminent. There was a bit of a delayed reaction, but market participants seem to agree, all at once, that stock and bond prices need to get cheaper. The S&P is off by 2.3% and small caps by nearly 3.3% as I type.
We suspect the weakness will continue a bit as the market continues to adjust to the not-so-new reality of a rate hike. It’s a good time to look at our allocations to stocks, bonds and other interest rate sensitive investment to see if we’ve gotten too enthusiastic about any asset class or sector; if we’ve got any positions we’ve become concerned about longer term; or if we’ve got any positions that have had big moves that we may want to trim.
The markets have a tendency to give in to the “wall of worry,” that it often climbs, during September and October, so it wouldn’t surprise us if the market is soft for some weeks. The financial media deciding to see the glass half empty won’t help much either. It’s probably a good time to hunker down a bit, but have our buy list ready for opportunities, assuming we’re long term investors looking for quality stocks and funds at a potentially reasonable price.
Several quarters of slow sales and a rate hiking Fed are market headwinds. Election noise tends to be a distraction too, but better jobs numbers, a somewhat revived consumer and great corporate balance sheets can mitigate an autumn slump. We feel that financial systemic risk has been greatly mitigated, so it’s not a time to panic. We’ll have more to say over the next weeks.