Here we are in November. We just experienced literally the strangest October that I have seen in my 30 years in this industry.
There was pretty much nothing going on! We had really good markets in the month of October.
Now, the MegaCap stocks, the really big ones, outperformed by far the S&P 500. The NASDAQ was the #1 performer, followed by the Dow Jones Industrial Average, and then the S&P 500. Lagging for the month of October were SmallCaps, coming in slightly down or about flat. Nothing to worry about there though.
The interesting thing is that equity valuations today are higher than they’ve been since just before, not the Great Recession, but just before the Dot-Com Bubble. Don’t let that scare you right now. There are a lot of really positive things that are happening in the economy. We’ve got housing on fire for example.
Interest Rates are still a very interesting story, because even though we know the Fed is going to raise rates when they meet in December, we still have the 10 Year Treasury almost 0.1% below where it began the year. We’re seeing almost no signs of inflation. That means that we’ll continue to see a low-interest environment for the foreseeable future even though the Fed may tick-up that short-term rate just a little bit.
Also, we see corporate earnings coming in that are surprising. They’re doing extremely well. Unemployment is very low. When we look at all the economic signs out there the only real red flag today is equity valuations. Equity valuations don’t come down just because they’re overvalued; they come down because of an event.
There is a possibility that the Trump tax plan does not pass causing some form of market correction. Corrections are normal and are defined as a 10% drop from a prior high. I’m not scared of a correction, what I’m scared of is a market crash or a bear market. However, I don’t see that on the radar screen in the coming months or maybe even up through the end of next year. You can find a little more information on the proposed bill here.
We are on the lookout for a correction, but again that’s something that would be healthy at this time. As long as your asset allocation is set up the way that it should be, I believe you should be very pleased with how we finish up this year. It’s very rare that we go into November and December and have those be the worst two months of the year.
So, what do I expect?
I expect that since we’ve already seen the estimate from most of the major brokerage houses be doubled as far as the rates of return on the markets. I think we’re going to continue to see positive things happen. We’re not going to see another 5% or 6% or 7% in the next couple of months I don’t think, but I do think we will continue to see strength in the economy. Which should mean that we finish the year positive in the markets. I think the 10 Year Treasury is going to wind up about where it was at the beginning of the year or slightly below.
So, until December 1st, I hope this information was helpful. As always, make sure and reach out to your advisors here at Barber Financial Group, and if you’re not a client you’re always welcome to come in for a great second opinion of where you stand today. Give us a call at 913-393-100 or schedule a complimentary consultation below.
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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.