Last week the Fed announced they would not raise rates. While this decision did not surprise us, the rationale for not raising rates was unexpected. The Fed cited a lack of inflation; strength of the dollar and global economic concerns as their reason to hold off rather than focusing on the US labor market and economic data. This lack of clarity confuses investors, adds uncertainty, and ultimately causes unnecessary volatility in financial markets. While we had hoped to get some direction from the Fed as a result of the meeting, our focus will now return to China as the primary source of concern and determining just how much a slowdown may impact the US Economy.
In the near term, we expect markets to be range bound trading between 1,867 and 2040 on the S&P 500 until investors are convinced that US economic & earnings growth will not be impacted by the global slowdown. The US economy remains healthy and recent stock market volatility has changed very little of that story, so we don’t believe your investment plan should change either. Our belief is that the bull market is still intact. We continue to advocate investors with cash buy on dips as we expect markets to rally before the end of the year. In terms of leadership, we would focus on investments in Europe and the US with our favorite sectors being technology, financials and healthcare. We would also focus on companies with strong balance sheets and predictable earnings streams that are trading at a valuation discount to the S& P 500.