CIO Insights: Buy The Dip
By Christopher B. Moore, CFP®
About the Markets
Equity markets around the world have declined by roughly 10% from their recent peak. We are not of the view that this decline is indicative of a broader selloff in equity markets and instead see this as an opportunity to add to equities at attractive levels. The decline has largely been led by large technology stocks (Amazon, Netflix, Alphabet) after they had experienced a multi-year bull market, but no sectors outside of Utilities and Consumer Staples were spared. The S&P 500 index grew earnings by roughly 22% in the third quarter but guidance for future quarters was muted due to uncertainty around US/China trade negotiations. The reduced visibility into forward growth, combined with rates moving higher in the US, spooked markets. We believe that the decline over the last few weeks is temporary and largely driven by technical factors. Our view is that the US stock market is adjusting to quantitative easing coming to an end in the US and Europe, rates moving higher in the US, and uncertainty around both trade and the upcoming midterm election cycle. We suspect that we will see a continued rotation within equities where the styles, sectors, and market capitalizations that may have been the leaders recently will be the laggards going forward. We are not concerned about a recession anytime soon. The economic fundamentals are sound and supportive of future equity market gains:
- U.S. GDP growth exceeded 3.5% in Q3
- U.S Unemployment is currently 4%
- The Fed, while tightening, remains accommodative with the Fed funds rate at 2.25%
- U.S. inflation remains under control at 2.3%
With the decline of the last two weeks, the S&P Price/Earnings (P/E) ratio dropped to 15.3 versus 18.8 earlier this year. Non-US equity markets are even cheaper after Asian, European, and Emerging markets have continued to decline off of their January high’s.
S&P 500 earnings for next year are expected to grow at a healthy low double-digit rate. Wage growth is under control and the current administration remains supportive of corporate America. In summary, now is not the time to panic. The recent correction is healthy for equity bull markets. Now is the time to be adding equity exposure to portfolios.
If you have any questions or comments, please don’t hesitate to reach out to us at info@simonquickadvisors.com.
About Chris Moore
Chris is a Managing Partner and Chief Investment Officer of Simon Quick Advisors based in Morristown, NJ. He joined the firm in 2004 as the third employee. Today, he sits on the firm's Management, Operating, and Investment committees where he provides guidance on the firm’s overall vision and strategy. He works closely with clients to develop financial plans and multi-asset class portfolios and has extensive experience in estate, retirement, insurance, tax, charitable, and investment planning. Chris graduated with a BA from the College of the Holy Cross where he majored in Mathematics and minored in Computer Science. He became a CERTIFIED FINANCIAL PLANNER™ in 2006 before going on to earn his MBA from Columbia Business School with a focus in finance and investments. Chris serves as an Advisory Board Member for Bow River Capital Partners, a private equity firm based out of Denver, CO, and he is a Board Member of the NJ chapter of the Young Presidents’ Organization (YPO), one of the world’s premier leadership organizations. Most recently, he became an Investor in Residence for the Benjamin Graham Value Investing Program at the UCLA Department of Economics. To learn more about Chris visit his LinkedIn.
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