September 2018 Market Insights

    Linda S. Parenti, CFA
    President & Chief Investment Strategist

    After a pause of seven months, the S&P 500 finally rewarded patient investors with its fifth record closing high of the year near the end of August. By month end, August had helped boost the year-to-date performance of the index to 9.9%. The new high officially reset the present bull market age to just under 9 ½ years. Using traditional measures, this bull market is still considered the second longest bull market in history. The longest ran over 12 years from December 1987 through March 2000.

    This weekend happens to be the 10th anniversary of the collapse of Lehman Brothers on September 15, 2008. This historic milepost of the financial crisis hit right at the midpoint of the Great Recession that spanned from December 2007 to June 2009. This was also just about six months before the start of the current bull market in March 2009. The S&P 500 declined 37% in 2008, so it may have seemed crazy to be buying stocks then. Looking back, that period would have turned out to be very advantageous in the long term.

    There has been a great deal of media focus on comparisons between then and now. Since no period is ever perfect, it is easy to feel some trepidation given ongoing trade concerns, rising interest rates, and the uncertainty of midterm elections ahead. Yet assuredly, we are in better shape today:

    • • U.S. bank failures have been on a steady decline annually. Year-to-date 2018, there have been zero bank failures in the U.S. versus 510 between 2008 and 2015
    • • Only 4% of home mortgages today are at least one payment past due versus 10% in 2010
    • • The unemployment rate is currently 3.9% versus 10% in 2009
    • • The U.S. is far less dependent on oil, importing nearly 22% less oil per day than we did in 2008
    • • In dollars, household debt has returned to 2008 levels, yet measured as a percent of disposable income, the household debt to income ratio has decreased substantially

    Today, consumer confidence is high thanks to strong employment and plentiful job openings. Corporate tax restructuring has boosted business confidence and encouraged capital investment. Additionally, corporate earnings are expected to be strong once again in the upcoming quarter. Interest rates and inflation are rising, but at a slow pace. Trade issues are a negative, but economic data remains robust enough that the tariffs should not overpower economic growth. This fundamental backdrop gives me confidence in the market’s ability to prolong the current bull run.

    RISKS AND IMPORTANT CONSIDERATIONS
    Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or particular needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.