Be thankful for what you have; you'll end up with more. If you concentrate on what you don't have, you will never, ever have enough. - Oprah Winfrey
As Thanksgiving approaches, we all have a lot to be thankful for. Here at Tempus, we just had our 2nd anniversary as an independent, SEC-registered investment advisory firm. Every day we are extremely thankful and humbled for the continued trust our loyal clients place in us and we continue to work hard for you and your families to help you to achieve all of your financial goals and dreams. Thank you!
Stock Market Correction
We are currently in a stock market correction. Have you ever thought why they call it a correction? The market takes in new information every minute of every day and then tries to figure out valuations based on this information. If that isn't hard enough, generally the market is not trying to figure out the valuation today, but for some time in the future (usually 6-12 months out). With all of the future unknown variables, this is clearly an inexact science. When the market gets new information that contradicts the current information, it corrects. That is what is happening right now.
So what has changed?
Lately the markets have been bombarded with new information. We have escalating global trade tensions, especially with China. Companies have seen an increase in input prices and labor costs (inflation). We just had the mid-term elections and now have a changing political landscape and the Federal Reserve has been steadily raising interest rates. The most important factor in a company's valuation (stock price) is its earnings and all of those variables can have an impact. We just got through the third quarter earnings season. According to Factset, the earnings growth rate for the S&P 500 for the 3rd quarter of 2018 is 25.7%. That is the highest growth rate since the 3rd quarter in 2010 and is the third straight quarter of earnings growth above 20%. Those are obviously great numbers so why did the stock market interpret them as bad news? As I stated before, the stock market is always looking ahead 6-12 months. When the corporate earnings come out, the officers of the companies usually do a conference call with the investment community. Due to the previously mentioned factors, on a lot of the conference calls, CEOs gave more conservative guidance. While growth rates for the 4th quarter are still expected to be double digits, growth is expected to be more moderate for 2019. Although the outlook is still strong and most economists don't predict a recession for quite some time, with all of the additional uncertainties the market doesn't like the direction of the numbers and that is why we are having the correction.
Where do we go from here?
Whether this leads to further downside from here is anyone's guess. Every day, the business news channels are filled with talking heads trying to guess the direction of the market and most are wrong. If you are familiar with our market philosophy or the Tempus Core Portfolios then you know that rather than trying to predict the unknown, we follow the trend of the markets and let the markets tell us where it is going. This is what guides our sell discipline in our Core Portfolios. With the heightened level of volatility and the recent break of the trend of the market, the defense is on the field. With that said, this type of correction is a natural process of a healthy market and there is no need to panic. Now is a good time to review your investments and your investment strategy to ensure that they are aligned with your risk tolerance and your overall investment goals.
If you have any questions about the markets or your portfolio or want more information on how our sell discipline works within our Core Portfolios, let us know.
From the Tempus family to yours, we wish you a happy and healthy Thanksgiving!