Due to recent events this month, investors are in no mood to rejoice. Stocks dipped and Treasuries surged last month as markets grappled with a barrage of ‘headlines.’ Is this the beginning of the end for the year’s equity bull? Read on to get all the details …
Stock Rally Snaps…Is a Bear Around the Corner?
Early this month, the S&P 500 broke away from their six-day long rally and fell by -0.8% – the steepest drop since August 17th. Additionally, the 10-year U.S. Treasuries yield fell to 2.07, this year’s lowest so far (According to Treasury Data).
These drops came amid a spate of already ‘noisy’ headlines. This includes North Korea’s completion of its biggest nuclear test and its possible intercontinental ballistic missile launch, heightening the country’s tensions with the U.S. and South Korea.
On the domestic front, natural calamities could be playing a role in drowning market optimism. Barely days after Hurricane Harvey wreaked havoc in Texas, the nation woke up to the news of another natural catastrophe, Hurricane Irma.
The Federal debt ceiling debate was mired with uncertainty at the beginning of the month. However, last Wednesday, President Donald Trump reached a deal with Democrats to extend the debt ceiling deadline by roughly three months, from September 29th to December 15th. That should help the government buy some time to work out its finances and meet urgent needs like relief to hurricane victims. But, until there is better clarity on whether the U.S. Treasury Department’s borrowing limit would actually be raised this year, there could be a looming concern about U.S. debt’s standing in global markets. And as a result, some uptick in market volatility could be expected.
So, is it time to lose the equity bull? Not so fast. While recent events and uncertainties might muddle investor calm, they cannot shake the ‘fundamental’ truth – which is, markets are guided by fundamentals. And Corporate America is on solid footing on that front. After a record pace of positive year-over-year earnings’ growth (+13.5%) in Q1, the S&P 500 companies are estimated to touch a new high in the dollar value of their aggregate net income (more than $290 billion) in Q2 (according to Zacks Earnings Trends report)
Key Takeaway for Investors
This month has been packed with news of geopolitical tensions, policy uncertainties and natural calamities. And while ‘headlines’ propel volatility, they are not sufficient to pummel a market’s potential. Economic fundamentals of U.S. corporations have shown some very healthy developments in recent quarters and that should eventually bolster their equities’ growth. So, do not let the roller-coaster in between spook you and stay the course with a fundamentals-based investing discipline.
Times like this prove that volatility is an inherent part of markets and cannot be eliminated or even predicted with certainty. But, there are strategies to help investors manage it and even find opportunities in it. We are giving you a sneak peek into some of these strategies in our guide, “Helping You Manage Market Volatility.” To get your free copy, click on the link below: