Where From Here?

July saw world stocks reach new heights, exceeding the expectations of many investors. The S&P 500 experienced its strongest first six months since 1997, while the global market had its best first half since the 1980s. This upward trend can be attributed to the sharp, V-shaped recovery from the Q4 2018 correction, which we had accurately predicted. The markets are behaving as expected in later-stage bulls, with continued volatility being normal as markets don't move in straight lines. It's worth noting that larger stocks, with a market cap of over $200 billion, are outperforming smaller, lesser-known companies. This is typical of late-stage bull markets as small-cap stocks tend to perform better in early-stage bull markets.

Many are wondering if the market has finally peaked as it consolidates around the psychologically important 3000 number for the S&P 500. However, this is unimportant. Despite investor pessimism, this bull market is actually the most hated in history. The media dominates with grim headlines as they know that fear sells better than "nothing is wrong." Investors have a lot to worry about, including US politics, Brexit, Iran, oil, the inverted US yield curve, tariffs, and a weak global economy. However, we believe that none of these factors have the power to end this bull market, either combined or on their own. As we wrote in April of this year, these headlines lack the power to derail the market's climb as the market is almost a perfect discounter of all widely known information. The economic backdrop continues to look positive for stocks with low interest rates, inflation, and moderate growth, all indicating a solid footing for businesses to innovate and thrive.

Although we have remained bullish throughout this bull market's ups and downs, we are aware of the risks. We know that this historically long bull market will eventually come to an end or get knocked off course by some unforeseen negative. We are actively monitoring the global political climate, the investor landscape, and the global economy daily. While we can't say exactly when this market will end, there is little evidence to suggest that it's now.

Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.

Panic Arrives

Call us crazy, but we’re buying.

Despite the negative news dominating headlines, we believe there are compelling reasons to buy into the market. Yes, the Fed raised interest rates for the fourth time this year, oil prices continue to drop, and Trump has refused to sign a bill to avoid a government shutdown. However, amid all the doom and gloom, the data shows a strong and healthy economy: forecasts suggest continued growth into 2019, the Leading Economic Index increased in November, yield curves are normal, and corporate profits are rising. In fact, we believe the market is undervalued by as much as 20%, making it an attractive opportunity for investors.

It's important to remember Warren Buffett's famous saying, "Be greedy when others are fearful. Be fearful when others are greedy." This is the time to be greedy and take advantage of the attractive valuations. The bottom may be setting in place soon, or it could take months. However, history has shown that the time of maximum pessimism is often the best time to buy. Don't let loss aversion keep you on the sidelines and miss out on the rebound. Focus on the strong underlying fundamentals and invest for the long-term.

Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.

Not a Bear

At the time of writing, the S&P500, Nasdaq, and MSCI World have all experienced significant declines from their recent highs. This has led to widespread worry among investors, who fear that the market will continue to decline. However, at Interlaken Advisors, we believe that this market correction is actually bullish for stocks, as Sir John Templeton once famously said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." By closely monitoring investor sentiment, we are able to forecast market conditions.

Despite a number of headline anxieties that are currently plaguing investors, we remain optimistic about the future of the market. One concern is the drop in oil prices, which has led many to fear a global recession. However, we believe that the total world consumption matches total production, which makes it unlikely that there will be a massive stock build of crude. Furthermore, the US is a net importer of oil, which means that cheaper oil prices are actually a tailwind for US GDP and companies. We can look to the oil-price decline from 2014 to 2016, which also worried investors at the time, but ultimately did not cause a global recession.

Another anxiety is China's bear market and slowing GDP growth, which some investors worry will infect the rest of the world as it sinks. However, we believe that the tariffs from the Trump administration amount to less than .3% of global GDP, and China has been in and out of bear markets for decades. Their economy is shifting from supply and production to services based, which means that their GDP has been shrinking for years. We believe that these worries have been priced into current analyst predictions.

Investors also worry about the Federal Reserve's continued rate hikes, which have occurred eight times since 2015. However, we believe that rate hikes only become problematic when they invert the yield curve, which is not currently the case. We do not see the current rate hikes or the next predicted rate hike in December as problematic for the market.

Finally, there is the political divide between the two parties in Congress, reducing the chances for any major legislation to pass through. However, we believe that the market likes gridlock and that this is nothing new for America. Despite the headlines of subpoenas and possible indictments, we have seen two presidents impeached by the House of Representatives in the past, neither of which passed through the Senate. During the Clinton impeachment, the stock market initially fell, but eventually created all-time highs. During Nixon's resignation, which occurred before impeachment was possible, stocks fell hard due to high oil prices and inflation.

While the current correction may be uncomfortable, we remind investors that corrections can occur with or without reason, and attempting to time the market in the short term to avoid swings typically hurts portfolios more than helping. We believe that the bull market should resume soon, as bear markets generally stem from large, unseen negatives that cut trillions from global GDP, rather than from known cynical narratives that are already priced into current expectations. The LEI continued to expand in October, despite the stock sell-off, and GDP continues to grow, the yield curve remains normal, and inflation remains relatively low.

Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.