Fall 2019 Investor Letter: Soft Versus Hard Economic Data
Oct. 11, 2019 5:50 AM ETSPY, QQQ, DIA, VOO, IWM, TQQQ, IVV, SH, SDS, TNA, TZA, SSO, SQQQ, SPXL, USA, UPRO, CRF, SPXU, RSP, SPXS, VFINX, UDOW, PSQ, QLD, QID, SCHX, ZTR, SDOW, DOG, DDM, DXD, UWM, VV, RWM, TWM, URTY, VTWO, EPS, SRTY, QQQE, QQEW, YPS, SPSM, FEX, ILCB, SPUU, EEH, EQL, SPDN, SPXT, SFY, SPLX, IWL, DMRL, SPXE, EDOW, GSEW, QQXT, PPLC, SFLA-OLD, SYE, CHGX, FWDD, SPXV, UDPIX, ESGL, HUSV, JHML, OTPIX, BIBL, EQWL, SPXN, USMC, DUSA, RWL, RYARX, SSPY, SCAP, UOCT, BOCT, PMOM, BAPR, BAUG, BJUL, BJUN, OMFS, PAPR, PJUN, RYRSX, SMLL, PAUG, PJAN, RWSL, TRND, UAUG, UJAN1 Comment
David I. Templeton, CFA
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Summary
- In the third quarter, many factors contributed to heightened market volatility that tested the patience of investors.
- If one simply read the headlines this year, they might have adopted a pessimistic market outlook and completely missed the 20% gain in U.S. stocks through the first nine months of the year.
- We discuss a few factors contributing to the volatility.
In the third quarter, many factors contributed to heightened market volatility that tested the patience of investors. If one simply read the headlines this year, they might have adopted a pessimistic market outlook and completely missed the 20% gain in U.S. stocks through the first nine months of the year. A few factors contributing to the volatility are listed below:
- The trade and tariff issue received heightened attention again when, on August 1, the Trump administration proposed a further increase in tariffs on virtually all China product imports. The equity markets reacted negatively to the news, resulting in the S&P 500 falling roughly 6 percentage points from the quarter’s high price to the quarter’s low price. In total, though, the S&P 500 Index did returned 1.7% in Q3. Although third-quarter returns were negligible in many asset classes, both equity and fixed-income investors have been rewarded for the year-to-date period with double-digit returns in most of the asset classes.
- Economic weakness is mostly centered in the so-called soft economic data versus the not-so-weak hard economic data. Most of the recession talk has been centered around the "soft" economic data.
- In July, the Federal Reserve cut interest rates for the first time since 2008 and then a second rate cut in September. The market volatility increased as a result of uncertainty around the magnitude and number of further rate cuts. With interest rates falling and earnings growth resuming, the equity risk premium is widening.
More insight on our views are covered in the Investor Letter below.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by
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HORAN Capital Advisors is an SEC registered investment advisor that manages investment portfolios for individuals and institutions. Our firm utilizes a disciplined investing approach that should create wealth for our clients over time. Our investment bias is to invest in companies that generate a steady return over time, i.e., singles and doubles. This singles and doubles approach tends to lead to investments in higher quality dividend growth/cash flow growth companies. On the other hand, there are times when a company's stock price seems to be trading below its fair valuation. Short term gains are possible in these situations. I have been managing investment portfolios for individuals and institutions for over fifteen years and believe investing is like running a marathon and not a sprint. Taking the road less traveled, more often than not, leads to higher returns. Visit: The Blog of HORAN Capital Advisors at (https://horanassoc.com/insights/market-commentary-blog)