The Fall can be a tumultuous time for the markets. Volatility can increase as hedge funds and mutual fund managers reposition their portfolios by selling losers and chasing winners. This year we expect amplified volatility after last year’s very strong returns, this year’s solid returns and a midterm election on the horizon.
K.I.S.S. is an acronym that stands for “Keep It Simple, Stupid”. Per Wikipedia, the KISS Principle states that simplicity should be a key goal and unnecessary complexity should be avoided. In its most simplistic sense, KISS could be applied to investing basics in coming months. Investors trying to ‘time the market’ and reposition their portfolios before midterm elections may be better off just holding tight.
As an active money manager, we look for opportunities when others are fearful. LaFleur & Godfrey views the volatility exhibited by the market the last few months, after years of virtually no volatility, as a blessing and not a curse. Because the markets are trading more ‘normal’ based on fundamentals (profits) and with less correlation, we are beginning to see many more opportunities to invest in great growth companies at very reasonable valuations.
A New Year typically brings with it a new sense of optimism. This really should be expected in 2018 coming off a very strong market last year and with the recent Tax Bill signed by the President. This keeps us constructive on the markets in the upcoming year but our exuberance has been replaced by cautious optimism for several reasons.
While it is human nature to be more comfortable being ‘consensus’, there is a growing belief on Wall Street and Main Street that we are living in a ‘glass half-full’ economy as opposed to the general view that we are ‘half-empty’. As a result, we believe that the strong market performance over the past year is a reliable barometer that, if Congress does its job and passes corporate tax reform, we may just be in the early innings of an accelerating economy.
Summertime often gives investors time to pause, relax and reflect on a year that is already half gone. Money managers are no different. We could pat ourselves on the back for a first half 2017 that has exceeded most of our expectations. However, that is not our nature.
Is this the goldilocks investing environment that many investors have been waiting for? Interest rates remain low, inflation is tepid, our economy is slowly accelerating, stock fundamentals are strengthening, on and on…! What could possibly go wrong?
The roller coaster year that was 2016 has prepared us well for the 2017 new year. The election may be over but half of America is still quite unhappy with the election result. So, while our near-term outlook tells us 2017 will be a glass-half-full kind of year in the markets, we are cognizant that the many problems we face cannot be fixed overnight with a new leader at the helm.