October Monthly Investment Update

October 3rd, 2017 by Anchor Bay Capital's Investment Team

It is already October!  For me it feels like this year has at times flown by and at other times just been standing still.  Hopefully this month finds you enjoying some moderate fall weather and catching your breath before the holidays.  With three quarters of the year behind us, it is a great time to evaluate progress and look at what might be ahead for investments in the final quarter of the year.  Here are some key items to be aware of:

2017 has been surprisingly calm:

We have not experienced any large swings in the market in 2017.  So far this year there have only been 8 moves of at least 1% and nothing beyond the 2% mark.  As you will see in the chart below provided by LPL Research, the last time the market has had a year this calm was in the early 1960’s.  It has been nice to rest easy over these last few months with such low volatility, but it is always important to not get overconfident.  We always expect volatility in stocks and you should maintain at least a 5 year time horizon for any money invested in the market.

Where Did All the Big Moves Go?

 

September brought new highs for the S&P:

At the end of September, the S&P 500 finished up for the year 14.24%.  Again, the market steadily moved forward and the total return for the month was slightly under 2%.

Looking Ahead:

The fourth quarter of year is typically strong, especially in years when the market is up over 10% through the 3^rd quarter.  Although this is good news, it is important to stay vigilant with any investing strategy and there are a few items that we will be watching and evaluating over the next few months:

• Tax Reform: While congress begins the process of working on tax reform this quarter, we expect it to be a complicated debate.  We do know that the government will have to come to a deal regarding the budget by December.  There has been hope that the tax reform legislation will be settled by early 2018.  While this result would give investors confidence that the government can follow through on their plans, there is not much clarity right now on which direction this will go.  There may be some market volatility in relation to this news as it plays out.
• The Economy: There is a strong chance that the Federal Reserve will continue easing monetary policy in December by raising interest rates again.  Economic growth is showing some strong signs and is expected to continue this quarter.  If the economy continues to move forward as expected, we should continue to see strong earnings from companies.  We may also see the point where this rally is overextended and there is a shift in which sectors are performing well.

Summary:

In any long term investment strategy, it is important to stay invested and capture market returns.  Since we have experienced such calmness lately, that has been a fairly straightforward job this year.  The calmness will subside at some point and we will have some larger down movements in the market.  During those times it is often harder to stay the course.  However, we expect that there will be opportunities to buy shares at lower prices on these down movements.  Shifts in portfolio allocations may be appropriate and holding more cash at times may be important to be able to buy positions.

I recommend a slight overweight to stocks over bonds and cash right now as yields remain low in the bond market.  A broad diversification among asset classes is always important and being diversified into international stocks right now is a good idea as the international markets seem to be a little undervalued compared to US stocks.

I always welcome discussions about your goals and how we can make sure that you are invested appropriately.  Enjoy your October and hopefully take some time to get out and enjoy the changing seasons!