September marked the eleventh straight month where the S&P 500® Index posted a gain, the longest streak of consecutive monthly gains since 1959. Stocks across all market caps posted solid returns during the third quarter, pushing year-to-date returns into the double digits for most equity indices. Growth generally outperformed value, and bonds marked time as interest rates remained relatively unchanged during the past three months.
The continued lack of market volatility obscured some major events during the quarter. In the third quarter View From A Mile Up, we tackle the economic effects of devastating hurricanes that have wreaked havoc on parts of the U.S. and the Caribbean, provide you with some action items in relation to the recent data breach at Equifax, as well as examine the recent uptick in wage growth and earnings. Lastly, we provide a cautionary note on state-sponsored lotteries (hint, don’t play!).
While we can make a case for accelerating economic activity and wage gains, we would be remiss to think that expansions and bull markets can last forever. Therefore, we are taking profits in stocks that have reached their valuation targets, while remaining mindful of new opportunities that arise in the normal course of economic cycles. It is easy for investors to focus solely on the apparent domestic excesses and risks as the expansion enters its ninth year, but that would lead one to ignore the developing strength in the U.S. and abroad. The old saying goes “bull markets (and economic expansions) don’t die of old age; they die when the Fed takes away the punchbowl!” Currently, the uber-dovish Fed doesn’t seem in much rush to raise rates. Nevertheless, we believe prudence and patience are requirements for managing our clients’ wealth and both dictate a cautious approach at this point in the business cycle.