Last week marked the worst week for the Dow in the past fourteen months, with nearly 40% of the stocks in the S&P 500 hitting a 20-day low.
Recent GDP reports evidenced a slowdown in the pace of economic growth such as the August jobs report which showed slowing wage growth and an increase in the number of part time jobs.
The yield on the 10-year Treasury hit a two year high of 2.8%, causing some to wonder if an increase in mortgage rates will put pressure on the housing market.
Earnings in Q2 are facing headwinds of their own, showing mediocre increases from last year. If the recent malaise in the economy continues, that could pressure future corporate earnings.
With all these factors considered our team’s view on the equity markets remains positive for the coming months.
The markets are entering a seasonally weak period and the next six weeks are full of challenges including Jackson Hole, the appointment of a new Fed Chairman and the resurfacing of debt ceiling issues.
Through the end of July, the S&P had only one negative month so far this year (June), which many believe was an overreaction to Bernanke’s future moves towards tapering. This overall market advance has not been marked by signs of euphoria in prior market peaks.
A recent Gallup Poll revealed a decade low percentage of Americans (52%) are invested in stocks. Across US brokerage firms, portfolios over $1MM are still more than 20% in cash. US corporations are also flush with cash and according to S&P, dividend payouts among the 10,000 US traded companies are up 13.9% year to date.
So what are we advising clients to do?
If we anticipate a pullback in the near term, we are helping clients assess their cash needs to determine if it makes sense to raise cash now before a market pullback.
Similarly, clients considering charitable giving should review low basis stock with unrealized gains that make ideal assets to give in order to avoid capital gains taxation.
For clients looking to add to their portfolios, use weakness to dollar cost average over a few months and accumulate shares at lower prices. Use any weakness to restructure.
Portfolios that are out of alignment should be rebalanced according to your investment policy statement.
