I think almost everyone is happy to close the book on the third quarter, what a quarter is was! Historically, August and in particular, September tends to be one of the weakest periods of the year for stocks. Indeed, history repeated itself. For the quarter, the Dow Jones Industrial Average (chart) lost a staggering 12.09%, the Nasdaq (chart)– 12.91%, the S&P 500 (chart) -14.33% and the Russell 2000 (chart) which is the benchmark for smallcap stocks, lost a breathtaking 22.15%.
This market action is understandable considering all of the uncertainty that exists here and abroad. So now we must ask ourselves, have the markets discounted the lack of direction and ambiguous economic policies that are being tossed around in Congress? Also, have the markets discounted the European financial crisis that seemingly changes every other day? Is China now slowing down in their growth and expansion mode that they have been in for years? What about this upcoming earnings season, are earnings expectations too high considering where the economy is and going? These are just a few examples of the risks out there and the headlines that we see daily.
One thing that I think is important to remember about our current cycle is the Federal Reserve’s current monetary policy. I still believe as long as interest rates remain near zero, the market should continue to benefit from this accommodative policy. Over the past couple of years, whenever we have had market corrections such as the one we are currently in, the market has found bottoms and has turned to resume its uptrend. However, with all of the aforementioned challenges we face, don’t expect that this will be an easy market to navigate and feel confident in. I also expect that volatility will remain high and that the sensational market swings that we have experienced over the past two months will continue for the foreseeable future. Good luck to all.
Have a great weekend 🙂