This month, markets around the globe suffered a nasty sell-off. After marching steadily higher throughout the summer and shrugging off worries about rising interest rates and a trade dispute with China, the stock market finally broke. We can try and make up more reasons for the drop, but the truth is that sometimes markets fall after rising so fast. In fact, the S&P 500 index rose 7.7% in the 3rd quarter of this year. In hindsight a pullback from that fast upward move makes sense. If you have been a client with us over the past 10 years, you have suffered through 23 drops of 5% or more in the S&P 500 Index. Each drop was painful and tough to live through but ultimately, the S&P 500 recovered all its losses and went higher for each of those 22 drops. Experience has taught us that the best course of action during market volatility is to stay invested. Once the volatility calms down, we will reassess to see if there are any changes that need to be made to your portfolios.
We believe that we are still in a bull market for stocks. But even in a bull market, no index and no portfolio can go straight up. We believe the conditions are still ripe for your portfolios to improve from here. The North American economy continues to improve, corporate profits are rising, the unemployment rate in the U.S. is at 50 year lows, interest rates are still historically very low, and inflation has so far been tame.
We are moving ahead with the same cautious approach we have always taken. While we remain fully invested, we will stick to high quality corporations that have strong balance sheets, that generally have a history of raising dividends and that have a long runway of growth for their products and services. As a result of slowly rising interest rates, we are keeping your bond maturities very short in the hopes that we will be able to earn better returns on fixed income going forward.
As always, please feel free to contact David, Barry, Scott or Ben at any time if you have any questions or concerns.
