25 Oct 2018
The stock markets around the world have been correcting and as usual the US markets are providing the lead. The US reporting season is nearly over and it is important to note that 88% of companies making up the S&P 500 index reported earnings growth as the US economy is booming (I was recently in the US), and I cannot see any reason for panic. Equity markets trade on future earnings and there is concern that earnings growth of previous years will not occur in 2019, and when combined with the US Federal Reserve increasing interest rates to more normalised levels institutional investors are being cautious, and the key rates, notably the US 10 year treasury has increased accordingly. The US mortgage market is priced off this benchmark and company valuations as well. A pull back has been anticipated and the increase in volatility reflects this.
If interest rates continue to rise, as anticipated, thereby increasing yields on bonds, then having greater exposure to bonds makes sense. It is a time to sit and watch while taking advantage of buying opportunities in asset classes that have been over-sold.
Travelling around the US, there is a boom happening. In Salt Lake City, Dallas, Frisco, Plano, McKinney, Phoenix and Scottsdale there is a huge housing boom, as well as infrastructure projects, freeways and roads. Salt Lake City airport is doubling in size.
In conclusion, it is important to take a long term view, and the correction will mean buying opportunities while it is important to remember in the long run volatility is smoothed.
If you wish to discuss please feel free to contact me.