We’ve seen a sell-off in the stock market and volatility continues to persist.
We believe it’s a good time to take some cash and start buying stocks.
A notable strategist at a big bank is actually saying that this is a “dumb money” sell-off.
So historically speaking, going back to 1994, volatility and the stock market struggled going into midterm elections.
By the way, midterm elections are coming up in November.
After these elections, historically speaking, you actually start to see the stock market typically rally.
This has been reaffirmed by, in my opinion, one of the world’s best money managers.
He is saying that the stock market may actually rally 15% - 20% more from here.
We believe it’s a good time to start taking some excess cash and putting it to work in the stock market.
For investors that are a little bit more technical:
The S&P 500 forward P/E ratio is now below the 5-year average. In our opinion, this makes valuations look pretty attractive.
Also, in our view, you’d need to see a lot more of a sell-off in the riskier parts of the bond market to start worrying.
Since the end of the quarter, CCC rated bonds are down roughly 0.25% more than BB rated bonds. And you’d expect this as a little bit more of a dramatic relationship to actually worry.
To sum it all up, we like the protection and potential upside of value stocks and we don’t believe it’s a good time to have excess cash in your portfolios at the moment.
Disclosure: The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person. Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Forecasts or projections of investment outcomes in investment plans are estimates only, based upon numerous assumptions about future capital markets returns and economic factors. As estimates, they are imprecise and hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time. The stock market is in reference to the S&P 500 index. Volatility is in reference to the CBOE VIX index. An index is unmanaged, does not reflect management or trading fees, and one cannot invest directly in an index. The notable strategist at a big bank was in reference to Pravit Chintawongvanich, an equity derivatives strategist at Wells Fargo Securities, and his statement was in reference to the Bloomberg article "A Listless VIX Says This Sell-Off Reeks of ‘Dumb Money’" written by Luke Kawa. One of the world's best money managers in our opinion was in reference to Scott Minerd of Guggenheim Partners. Minerd's 15%-20% stock market statement was pulled from Twitter @ScottMinerd on 10/26/2018 at 10:43am. The S&P 500 forward P/E ratio was taken from Bloomberg Terminal as of 10/26/2018. The 5-year average of the S&P 500 P/E ratio was referenced from the Bloomberg article "Stocks are on the Brink of a Bear Market" by Stephen Gandel. The return differential between CCC and BB rated bonds is merely used as a reference point and is for educational purposes only. CCC rated bond performance was gathered from S&P U.S. High Yield Corp Bond CCC Index Total Return on Bloomberg Terminal COMP screen for the dates 9/28/18-10/25/18. BB rated bond performance was gathered from S&P U.S. High Yield Corp Bond BB Index Total Return on Bloomberg Terminal COMP screen for the dates 9/28/18-10/25/18. An index is unmanaged, does not reflect management or trading fees, and one cannot invest directly in an index. The midterm election volatility and S&P 500 returns statements were in reference to Goldman Sachs' Market Know-How Edition 3 analysis titled "Election Pop and Volatility Drop." Their disclosure for this data is as follows: Source: GSAM. As of August 2018. S&P 500 Average Return is the path of the S&P 500 Index before and after historical midterm elections (i.e. the midterm elections are the starting point of the analysis to determine the average pre- and post-election S&P 500 path), using the averages of weekly returns in order to generate that path. The midterm elections analyzed were: 1994, 1998, 2002, 2006, 2010, and 2014. Average VIX refers to the average weekly absolute value of the CBOE Volatility Index (VIX) to generate a path before and after those same midterm elections. The analysis uses S&P 500 and VIX data from May 27, 1994 to April 24, 2015. For example, the S&P 500 average return four weeks before the midterm elections was 5.2% lower than that of the midterm week. The average VIX level four weeks before the midterm elections was 24.0. Past performance does not guarantee future results, which may vary.