October 26 2018

Autumn Cleaning

This autumn cleaning of risky positions feels like full-blown winter. You may not have heard Trump recently boasting the stock market performance as the reflexion of his own economic brio. Well, the 10% slide month-to-date in the S&P500 may have made him a little uneasy. To be sure, there is a great disconnect between the actually good company earnings, showing that they are on average matching expectations, and the stock market punishment they get for dimmer forecasts.

Even if you look further beyond, US 3Q18 GDP QoQ growth at 3.5% (above 3.3% consensus) is not what we call disappointing. However, with consumer sentiment slightly dipping (98.6 VS 99 prior) and real estate sales stalling, there is this growing sense of the tipping point in the growth story. In fact, there is no reward for holding onto growth stocks when the pace is decelerating even a tiny bit.

At this point you may be tempted to fall back onto “value”, but even then, the market says “not just now” as a fair bit of cleaning has to be done first, notwithstanding that year-end is looming and traders are trying to cling on to whatever bits of profit left for colder days. Make no mistake though, despite this correction being long overdue, this is not the end of the economic expansion just yet.

360 Advisory – Markets