October has been torture for investors, but the real damage is not in the headline Standard & Poor’s 500 (SPX) index but below the surface. For example, SPX has declined 1.62% in October, whereas the widely held biotech ETF, VanEck Vectors (BBH) has declined 7.66%; the SPDRs Consumer Discretionary ETF (XLH) declined 2.27%; the SPDRs Materials ETF (XLB) dropped 2.39%; and unhappily, the Russell 2000 (RUT) got hammered 4.93%. We just added to existing Russell 2000 positions.
Oddly enough, for the period August to October, the SPX has declined each month for a total of 1.87%. It is the first time since 1952 that the SPX declined in a Presidential election year for each of those three months. In 1952, the total three-month decline was 3.46%. That occurred even though it was quite apparent that General Dwight D Eisenhower would pummel Adlai Stevenson in the election.
In other words, there was a great deal of market concern up to the election in 1952. The same could be said for the 2016 election. I would note that in the November – December 1952 period the SPX rose an astounding 8.36% after the election clouds lifted.
So while October and the past few months have been painful, I see light at the end of the tunnel.
One such positive development is how corporate earnings are faring for the third quarter. So far 275 out of 500 SPX companies have reported results. Earnings surprises are on average 5.85% better than estimates, the best such quarter since first quarter 2015. Unfortunately, in the short run that is not being seen in stock prices. In the long run, it will.
Today, the first estimate of 3rd quarter GDP will be released. Economists are expecting the economy to grow at a 2.6% annual rate. I am skeptical that the US economy grew at as fast a rate. Then again, the UK reported a surprising 2.3% growth rate, despite the fallout from Brexit. I would not be surprised if the US GDP comes in at a slower rate than is expected. If that is the case, it could have implications for FOMC policy and the election.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long IWM & UWM— although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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