by Ralph Cole, CFA
Director, Equity Strategy and Portfolio Management
In our Investment Outlook this year we show how this recovery almost mirrors the recovery of 2009.
Please note that over the next nine months, the market didn’t go anywhere and there were four 10+ percent corrections. Now is the time to start bracing yourself for upcoming volatility. These drawdowns will likely be accompanied by alarmist headlines as well (I want to thank our friends at Strategas for this concept). Both covers below were published in The Economist in 2010.
The first cover from January 2010 is an appropriate comparison for right now, because we are seeing the term “bubble” thrown around a lot lately. While we agree stocks aren’t cheap, and there are pockets of excess, we believe the market is fairly valued, based on strong fundamentals and low interest rates.
Wrapping up a Dynamite Earnings Quarter
Fourth quarter earnings season is coming to a close for the S&P 500. As of September 30, earnings for the S&P 500 were expected to be down by 13 percent in the fourth quarter. Earnings for the quarter ended up 2 percent, and the surprises were broad based:
Note that the biggest surprises were in the cyclical sectors of consumer discretionary, energy and financials. The one area with a negative surprise was industrials, and that was disproportionally affected by General Electric and Boeing.
Week in Review and Takeaways for the Week:
Markets are due for some volatility, but we don’t believe we are in a bubble
Beware of headlines that try to scare you out of the market, stay the course early in a recovery
Earnings continue to surprise on the upside, making valuations more reasonable