October Uncertainty Spooks Investors

Stocks have tumbled this week, reflecting investor concerns around topics including earnings, global tensions and interest rates.

October 24, 2018

Stocks tumbled this week on fears surrounding corporate earnings, global economic growth, rising interest rates, and the continued fallout of protectionist trade policies. Since October 1, the Nasdaq, S&P 500, and Dow Jones Industrial indices have fallen 11.6%, 9.1%, and 7.8%, respectively. Global markets were similarly impacted and continued their ongoing declines, with developed and emerging markets down 11.0% and 11.2% respectively for the month.1 Technology stocks have led the decline in the U.S. while Chinese equities continue to weigh on international markets.

Meanwhile, significant geopolitical developments continue to simmer. Ongoing Brexit negotiations, debates over Italy’s budget, tensions surrounding Saudi Arabia, and the upcoming U.S. midterm elections continue to give investors cause for concern.

However, there’s hope yet for investors, explains European Strategist Chris Bailey. “It is certainly possible [that] the upcoming midterm election results will induce a more conciliatory tone to world trade discussion,” Bailey notes, wherein “compromises are found in the Brexit and Italian budget debates and China continues encouraging its burgeoning consumer base to boost their spending – a combination that would have a positive impact on global markets.” He adds, “Important for this may well be a lower value for the dollar against many of its key global currency peers.”

We believe the long-range outlook for the economy remains positive, though volatility is to be expected. Periods of calm, such as the months leading up to October, tend to be followed by turbulent re-adjustments, explains Raymond James Chief Economist Scott Brown. “We continue to view this as a normal pullback and not something worse,” adds Senior Portfolio Analyst Joey Madere. And furthermore, “with earnings and economic growth being supportive of equities, valuation is now much more attractive.”

In fact, the tumult in the domestic and international stock markets may be opportunity in disguise. While recent short-term volatility may read as a cautionary tale to some, the market has seen periods like this before – and subsequent rallies. It’s not always easy to take a long-term view in the throes of an up-and-down cycle; however, a well-structured financial plan can help you weather these occasional fluctuations.

Your advisor will continue to closely monitor market movements. In the meantime, please reach out to him or her if you have any questions.

1As measured by MSCI’s EAFE and EEM indices.

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