October saw stock markets across the globe suffer one of the sharpest monthly declines since the global financial crisis in 2008. With the exception of stable, dividend-oriented sectors like REITs and Utilities, nearly the entire market experienced lower stock prices during the month. High growth stocks experienced the most acute pain, with price drops striking market darlings such as Amazon, Netflix, and Google, but even longstanding industrial stocks suffered double-digit losses in some instances.
From our perspective, October’s market activity looks like a healthy correction. Given the S&P 500’s relentless climb of over 300% since the depths of the global financial crisis, it is natural and expected that the market will blow off some steam from time to time. The reality is that even with these substantial declines, valuations have only been reset back to May 2018 levels.
It’s also natural for investors to feel some anxiety when the market corrects. Certainly, market behavior in recent years has lulled investors to expect a nice steady progression of higher stock prices. But while a sharp market decline can feel unnerving, keep in mind that we’ve seen four similar pullbacks in just the last few years. And despite the spooky macroeconomic headlines (rising rates, trade wars, slowing growth, and political tensions in Washington), market fundamentals in the form of corporate earnings and balance sheets remain strong overall.
We’ve seen market volatility before and understand that an appropriate long-term investment horizon combined with well diversified portfolios is the first line of defense against abrupt shifts in the market. Maintaining that long-term strategic and disciplined outlook can also help combat personal investment behavioral biases and anxieties, which can undermine our efforts.
In October, Tony and I were encouraged to see a calm demeanor among Arnerich Massena team members; not only was there a lack of anxiety, but conversations centered around how to take advantage of the market sell-off. And we’re glad to see that client responses to the recent declines have been rational and tempered. Thank you for your continued support as we navigate these interesting markets together in pursuit of your long-term goals.
– Bryan Shipley, CFA, CAIA, Co-CIO