Executive Summary: Corporate Earnings, Fundamentals, and Equity Valuations all support a case for continued strength in the market, although longer-term return expectations should be tempered going forward.
Outlook:
Historically, September and October have been volatile for the stock market. While markets have been somewhat turbulent in the past few months, we believe fears about a so-called “October effect” are somewhat overblown. Since 1900, the Dow Jones Industrial average has ended the September-October time period with an average return of -0.7%. With this in mind, it is not surprising the market is experiencing volatility, especially given the negative headlines related to fiscal policy uncertainty, debt-ceiling negotiations, stretched investor sentiment, a rocky but recovering job market and persistent COVID-19 delta variant.
During such times, it is crucial to focus on the long-term outlook and fundamentals.
As we near year-end, many market strategists including those at Charles Schwab point to a number of favorable factors to consider such as:
- Compelling value in equities relative to bonds
- Exploding consumer demand and pricing power
- Strong corporate earnings, particularly among cyclical (i.e., economically sensitive) firms
- Decreasing uncertainty and market risk related to the Delta variant
Looking Ahead:
According to Charles Schwab’s Center for Financial Research, the composition of earnings across sectors speaks to corporate resilience and potential.
Given the multitude of risks, we believe it would be prudent for investors to maintain a long term investment orientation despite ongoing short term market turbulence. For long-term investors, short term market declines can actually be quite beneficial, in fact, signaling a good time to buy at attractive entry points.
Important Disclosures:
Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Forecasts contained herein are for illustrative purposes, may be based upon proprietary research and are developed through analysis of historical public data.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.