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Views on October Markets

October 31, 2018

The month of October has been very challenging for the world equity markets. In speaking with clients, we recognize that most, if not all, are nervous. The S&P 500 is now down over 10% from its high and has entered into “correction territory”. At TrinityPoint, we believe that is exactly what it is- a correction. This is not 1999-2000, when technology and growth stocks traded at nose bleed levels. This is not 2008-2009, where the housing market was frothy and the banks were leveraged 25 to 30x. It was just this past February that we had a 10% correction before making our way back higher. Since 1928, the S&P 500 has had a 10% or more correction about every 8 months and the average length was approximately 64 days¹. On the negative side of the ledger, we have tariffs, interest rates rising, potential peak earnings, and geopolitical headlines. We see and understand these potential headwinds.

To us, the positive side becomes pretty compelling. During the earnings announcement season, companies are required to suspend stock buyback plans. However, once we move into November, there is a strong likelihood the buybacks will resume, especially as companies now have an opportunity to buy at lower prices. November also brings in the mid-term election results which removes another uncertainty from the market. The U.S. economy grew at 3.5% in the third quarter which was ahead of expectations. Of all companies that have reported earnings this quarter, 77% have beaten estimates². Assuming 2019 earnings are revised lower to $170-$175, we are now trading below 15.5x earnings. Maybe the U.S. economy slows a bit, but that would still leave us with a healthy, good economy.

Those are the facts. Corrections are never fun and unfortunately, they are a fact of life for investors. We do not know the week, the day, or the hour that the market will turn but we believe we are closer to the end of the correction than the beginning. To us, it looks like the market is on sale. We still believe this bull market is somewhere around the 7th inning of a 9 inning ballgame which leaves potential for additional upside. Barring any exogenous event (such as a terrorist attack, etc.), TrinityPoint will continue to implement the current investment plans of its clients. In the days and weeks ahead, we are here to discuss the markets, your investments, and your ideas. Thank you for your trust.

 

Footnotes:
1. Source: Bloomberg
2. Source: Factset
Important Disclaimer: This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Opinions expressed by TrinityPoint are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated.