Red October

Fall is upon us and more than the leaves are shedding their green shades. After performing admirably in the third quarter, stocks have turned quite red in the month of October. Bonds are no different. It should be noted that Total Wealth portfolios began harvesting gains in early October to raise cash well beyond normal levels. When yesterday’s swoon took markets around the globe down in dramatic fashion, TWP had already reduced risk in both stocks and bonds. The result is that we can view the current turbulence in the marketplace as an opportunity rather than something much more ominous- and for that matter much less likely.

While there is plenty to be concerned about these days, there is also much to appreciate. We probably don’t need to enumerate all of the things that are… concerning. So, in light of our present portfolio posture, we will take a look at some of the good. US companies are expected to report robust earnings in the coming weeks. Inflation is quite tame. The global economy is still growing albeit at a more moderate pace and that is in spite of the world’s two largest economies going toe to toe in a trade war. Consumer confidence in the US is high and unemployment is at a 48-year low. Forward looking domestic economic indicators are strong for both services and manufacturing. The outcome of the midterm elections is likely to translate into additional fiscal spending at the federal level- the real question is what “flavor” it will be.

For our part, we do expect earnings to continue to grow, though it is a bit concerning to see the Fed and administration at loggerheads presently. The main question going forward is the multiple that the market will be willing to pay or how much a rational investor would be willing to pay for future earnings. The world is an uncertain place and the marketplace is no different- should we expect some multiple compression? One thing is for certain, valuations will be more and more important should volatility in earnings, rates, and currencies sustain itself. As we head into earnings season with Citigroup (C), JP Morgan (JPM), and Wells Fargo (WFC) reporting on Friday, we will continue to monitor the quality of earnings and the guidance of various management teams. Market swoons are never exactly fun, but we are here to reassure you that you are in the safest of hands.