Tahoe Market Pulse: Time to review the third quarter
The quarter began with the Brexit fallout and ended with Deutsche Bank liquidity fears. In between were predictions that rates would rise and stocks would fall. It’s always something. In the end, the news stories only increased volatility and clicks on financial media websites. The S&P 500 shrugged it all off and rose 3.3 percent in the third quarter. For the year, the S&P 500 is up six percent.
Stocks follow earnings, and they are heavily influenced by the economy. The economic team at the White House lowered their growth forecast for this year to 1.9 percent and over the long term to 2.2 percent. The Fed lowered its forecast to 1.8 percent. The slow-growth economy is below what is needed to boost incomes and standards of living.
Overseas the picture is the same — slow growth at best and the outlook is tepid, especially in those countries with aging populations and a shortage of working-age people. Western Europe and Japan are in that camp. So is China due to years of a one-child policy. Our working-age population is rising by a token 0.2 percent.
The tepid economic growth forecasts underscore the certainty that rate boosts from time to time, if they occur at all, will be a non-event for investors. Short-term income vehicles and money-market funds that pay next to nothing now will pay next to nothing in 2017 and the year after.
So where does that leave us? Where we’ve been. It won’t be a rip-roaring bull market, but slowly rising prices. It may be that most of portfolio returns come in the form of dividends and interest payments as opposed to rising prices.
Bottom line: Remaining invested through all the scary events and bad headlines isn’t easy, but it helps when you know you own quality securities. During this seven-year bull market there have been a lot of dire predictions and analyst recommendations to sell. Those stories accomplish their goals of getting website clicks, but they are merely distractions for investors.
The bull market is intact, aided by low interest rates both here and abroad. Let’s allow for periodic sell-offs and rallies, but prices will move higher in fits and starts. Only the prospect of substantially higher interest rates would undermine the market and make alternatives attractive. I see no catalysts for that, nor it seems does the Fed.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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