October 1, 2018 |
What happened in September?
Despite only a modest rise in September, the S&P 500 had its best quarterly return since 2013 and, with lagging international and emerging market returns, extended U.S. equities’ lead over the rest of the world year-to-date.
Economic data out of the Eurozone showed stalling growth while investors remain optimistic about the strength of U.S. assets. This faith in the U.S. economy outshone tensions with China and has been bolstered by some positive signs of Canada rejoining NAFTA negotiations.
The dollar has weakened slightly from earlier in Q3, but rose after the Federal Reserve announced the third rate increase of 2018. The strong dollar is still negatively impacting emerging markets as most of these countries have dollar-denominated debt that becomes more expensive with a stronger dollar. The Fed’s rate increase in September was expected and a fourth increase of the year is forecasted for December. Analysis of the Fed’s statement regarding increasing rates raised expectations of more rate increases in 2019.
The U.S. technology sector stumbled in September as the Nasdaq Composite fell 0.8%, its largest monthly decline since Facebook’s data scandal in March. This sector’s valuations remain stretched and have strongly contributed to the market’s overall elevated multiples. These levels will be closely watched especially if the divergence from international stocks becomes more pronounced.
Moving into October
The strong quarterly returns for U.S. equities is a sign that investors are prioritizing the solid corporate earnings and positive economic data over global trade tensions. Lagging international stocks is likely driving some investors to increase their allocation to domestic equities, which may be driving up stock prices even more. As a result, the upcoming U.S. earnings season will be watched very closely. The dollar strengthening during Q3 could have a negative impact on multinationals’ profits as it becomes more expensive to convert international profits into U.S. dollars. Upcoming economic and earnings data overseas will also be important to either reinforce the thoughts of an international slowdown or to show some signs of positive growth.
↓ Valuation | Valuation indicators remained relatively unchanged from August. S&P 500 P/E ratio sits at 21.1, which is slightly higher than the lagging international markets.
↑ Sentiment | Domestic optimism remains as the U of Michigan Consumer Sentiment Index stayed near its multi-year highs. Consumer confidence hit an 18-year high according to Conference Board
↑ Technical | Technical indicators dropped slightly but remain positive. The relative strength index, a measure of momentum, moved to 58.4 from 62.6. The S&P 500 remains above its 50-, 100- and 200-day moving averages.
↑ Macroeconomic | Consumer spending growth cooled slightly in August but is still high and forecasted to pick up the pace of growth into the end of 2018. U.S. unemployment remained below 4%.
Important Disclosure Information
As of 9/30/2018. Data provided by Bloomberg, NorthCoast Asset Management.
The information contained herein has been prepared by NorthCoast Asset Management LLC (“NorthCoast”) on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. NorthCoast has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. All opinions and views constitute judgments as of the date of writing without regard to the date on which the reader may receive or access the information, and are subject to change at any time without notice and with no obligation to update. This material is for informational and illustrative purposes only and is intended solely for the information of those to whom it is distributed by NorthCoast. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of NorthCoast. NorthCoast does not represent, warrant or guarantee that this information is suitable for any investment purpose and it should not be used as a basis for investment decisions.
PAST PERFORMANCE DOES NOT GUARANTEE OR INDICATE FUTURE RESULTS.
This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy. The reader should not assume that any investments in companies, securities, sectors, strategies and/or markets identified or described herein were or will be profitable and no representation is made that any investor will or is likely to achieve results comparable to those shown or will make any profit or will be able to avoid incurring substantial losses. Performance differences for certain investors may occur due to various factors, including timing of investment. Investment return will fluctuate and may be volatile, especially over short time horizons.
INVESTING ENTAILS RISKS, INCLUDING POSSIBLE LOSS OF SOME OR ALL OF THE INVESTOR’S PRINCIPAL.
The investment views and market opinions/analyses expressed herein may not reflect those of NorthCoast as a whole and different views may be expressed based on different investment styles, objectives, views or philosophies. To the extent that these materials contain statements about the future, such statements are forward looking and subject to a number of risks and uncertainties.