We’re in the early days of October and September was a surprising month by many standards. It was one of the least volatile Septembers we have seen in recent market history.
We saw SmallCap stocks increase by about 9.5% in the month of September alone. That is huge. Now, keep in mind SmallCap stocks are now ahead by about 9.5% on the year. SmallCap stocks have been lagging behind the entire market for the majority of the year, but they came back with a vengeance in September. Why is that?
Well, let’s take a look at why the market looks like it’s going to perform one the best years since 2013. We’ve got some catalysts out there that are really playing into what’s going on in the market. I don’t want to ignore the fact that we have equity valuations through the roof. Equity valuations are higher today than they were even before the Great Recession.
Let’s put that aside for the moment and discuss why these equity valuations are sustainable at the levels that they are today for some period time.
- Investors have nowhere else to go. You still can’t get good returns in the bank, even the long-term treasuries. We’ve talked about this for the last several months. 10 Year Treasury yields are still hovering below 2.5%. We started the year at 2.45% and we’re sitting at about 2.34% today.So even though The Fed has raised rates twice over the course of this year and we still see that 10 Year Treasury, or the longer-term yields, are lower than they were on January 1st. That is helping support market valuations, so investors are going to stocks. We have a lot of momentum in the markets today.
- We have the potential for a new health care bill coming out shortly.
- We have the tax bill coming up at the end of the year. Which looks like it could have some meaningful tax reform. I think if you take a look at what has happened with the SmallCap stocks over the course of the last month, that they really like the new Trump tax plan for small businesses.
What’s the month October hold for us? Well, it’s anyone’s guess. I do believe we will continue to see strong corporate profits. I do believe that we will likely see another Federal Reserve rate hike later this year. However, I think we’re still going to finish the 10 Year Treasury somewhere in that 2-2.5% range, about where we are today. October will probably be a little bit choppy, it typically is, but I still see some good things out there on the horizon.
Now, keep in mind, don’t make investment decisions based on the whim of what’s going on in the economy or the market, economic plans, tax plans, or any of that. Make decisions based on what your money needs to do for you. Our clients know how to decide that because we’ve built a plan for you so that it all comes together. Those of you that are not our clients, you need to have a good solid retirement strategy built. That retirement strategy will tell you how your money should be invested, and that’s how you make your investment decisions.
Thanks for joining me here for the Monthly Economic Update. I look forward to talking to you next month.
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