September 2015 Economic Dashboard
In an effort to help spur spending and economic growth, The Federal Reserve has intentionally held short term interest rates near 0% dating back to the financial crisis in 2008. Many Fed watchers expected a small increase in the rate at its September 17 meeting, but the Fed decided otherwise. They cited significant volatility in global stock markets and concerns the already-strong US Dollar would move higher compared to our major trading partners’ currencies. The latter would harm the financial performance of US exporting companies, while the former has been triggered by the crash in Chinese stocks (after a notable bubble). After a period of three placid years (2012-2014), volatility is back in the financial markets.
US stocks in the third quarter fell by the most since the same quarter in 2011. The S&P 500 experienced a brief bear market in 2011, when it declined 21.6% between the high on May 2 and the low on October 4. Bear markets do occur during secular bull markets, as seen in 1987, 1998, and 2011. This species of bear market tends to be shallower and briefer than the 2001-2003 and 2007-2009 declines that were accompanied by recessions. If a recession was looming, the Fed would be focused on another round of Quantitative Easing as opposed to the much discussed rate hike.
So the question facing investors is whether this correction will bloom into another bear market similar to 2011. It is certainly possible and as such, this is a good time to review our investment philosophy and process:
We perform 100% of the research that results in your portfolio – no Wall Street rah-rah.
We invest in larger, reasonably valued companies which tend to hold up better in rougher markets.
All of your holdings return capital to shareholders either by paying a dividend, repurchasing their own stock or both. These companies have outstanding financial strength and stable stock performance.
We invest in seasoned companies with deep management teams that have experienced dozens of economic cycles.
We are willing and able to raise cash when the markets look expensive or it is difficult to find reasonably valued companies.
We continuously research new stocks, both to replace stocks sold during uptrends, and more importantly, to invest when there has been a correction and subsequent buying opportunity.
We consider our clients to be investors, not traders. Pullbacks can be uncomfortable but trying to time the top and bottom of a market cycle is a fruitless endeavor.
Yogi Berra died at 90 on September 22. A couple of favorite Yogi quotes are “it ain’t over till it’s over” and “this feels like deja vu all over again”, which convey our own experiences having weathered a number of stock market corrections over the years. Have a great fall and hang tough!
This commentary is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security. Although the statements of fact in this report are obtained from sources that Woodley Farra Manion Portfolio Management consider reliable, we do not guarantee their accuracy and any such information may be incomplete or condensed.