Your September Monthly Market Commentary
The kids are back in school, football is on the tube, and many of us are scratching our heads as to how it’s already the last quarter of 2019. Even in the face of all the background noise of trade wars, political arguments, and interest rate cuts, the market ended the month higher.
Contrary to experts predicting the impending crash, the longest expansion in United States history kept chugging forward. As you get ready for your favorite TV shows to return from break, sit back and catch up on some highlights from September.
Politics Front and Center Around the Globe
Every month there are major geopolitical headlines that drive markets, but it seemed like there was a market moving headline every week throughout the month of September.
• Trade War with China– After a rocky August, cooler heads seemed to prevail in September. Both sides continued conversations, and President Trump hinted that a deal could come sooner than expected. A recent Harris Poll found that 67% of Americans feel it is necessary to confront China over its trade policy, so pay attention to the planned meeting between the two nations in October. It is also worth keeping an eye on the recent reports that the United States is deliberating the idea of restricting investments in Chinese companies, although there are limited details at this time.
• USMCA– It seems like a lifetime ago, but the agreement between the United States, Mexico, and Canada was signed last November. China seems to capture all the headlines, but it is important to remember that Mexico and Canada are also among the United States’ top three trade partners. With Congress back in session, there is bipartisan hope that the agreement will finally pass.
• Brief Shock to the Oil Market– Saudi Arabia is the second largest oil producer in the world, so a recent attack that decreased their oil production by roughly 50% had a major impact on global markets. Oil prices spiked by nearly 20% shortly after the attack on Saudi Arabia’s oil infrastructure but have since retreated as production increased. The United States recently deployed defensive military forces to the Middle East, so monitor this evolving situation and its impact on the oil markets.
• Impeachment Inquiry– It seems you cannot turn on the TV or read the newspaper over the last week or so without seeing a headline related to the House’s impeachment inquiry of President Trump. There have been headlines of impacts to the stock market, but it is important to keep mind that so far investors seemingly have not been moved by the news. Since many do not expect the effort to garner the two-thirds majority needed in the Senate, the impact on legislation is what investors are watching.
Keep an eye on…
• Avoiding clickbait– It seems like every time you turn on the TV or visit a website there is “breaking news.” There are also catchy headlines calling for a market meltdown. Here are several of the countless examples of similar headlines in 2012 , 2014 , and 2015 . Stock markets will experience volatility and there will eventually be another recession, but do not let headlines sway your decisions rather than sticking to a long-term strategy.
The Fed Making Moves
Normally, the second rate cut in a little over a decade would be the top story of the month, but with all the geopolitical headlines, this story got bumped below the fold.
Last month the Federal Open Market Committee met and released a statement. Ultimately, the Fed cut rates by 25 basis points (0.25%) but there is a growing divide and increasing uncertainty over what will happen next.
Keep an eye on…
• Being strategic with your cash– As interest rates decrease, the rates on high yield savings or checking and savings accounts are decreasing. Consumers notice this but seem to ignore the fact that 70% of Americans have their cash parked in old school accounts that are not paying competitive interest. Every bucket of money should have a purpose. Ideally, people have enough cash on hand to cover short-term expenses or to prepare for emergencies. Evaluate this amount and make sure you are not holding too much or too little cash.
• Re-evaluating your debt– As interest rates have decreased, interest rates on debt have decreased. This is not always a one-to-one relationship, but in general it is cheaper to borrow money today than it was a year ago. Refinancing your debt can be a powerful tool to reduce the amount of interest you pay which may allow you to pay off debt quicker or reduce payments to open room in your budget to save for other goals. Not everyone will pay lower rates because underwriting rules still apply, but it is worth exploring how the changing interest rate environment impacts your unique situation.
Unfriendly Welcome for the New Kids on the Block
September was an interesting month for companies that went public and those that decided not to go public. SmileDirectClub and Peloton received the cold shoulder from investors whereas WeWork and Endeavor delayed their public offerings.
There are similarities and differences among this group, so let’s break down what happened with each company last month.
• SmileDirectClub– They raised over $1.3 billion in an initial public offering, but shares fell 28% on the first day of trading. The company aims to disrupt the dental industry, but face challenges in the form of lawsuits, regulations, and growing losses year over year. Time will tell if this is a short-term hiccup or a larger implication on their business model.
• Peloton– they raised over $1.1 billion in an initial public offering, but shares fell 11% on the first day of trading. Peloton is another example of a tech company that saw increasing year over year revenue but widening losses leading up to the IPO.
• WeWork– WeWork has been front and center since filing paperwork in August. After investors questioned the company’s leadership and economics, they delayed the IPO in the face of a drastic reduction in valuation. Since that time, there have been leadership changes and investors seem to view this as an evolving situation.
• Endeavor– In the last few days, Endeavor delayed its IPO for the second time this year. Some view the chilly response to Peloton’s IPO and decreasing demand for shares as a sign that the current market environment is not the ideal time to go public.
The More You Know
A study found that goals were scored on 80% of penalty kicks in high-level soccer. What’s shocking is that 29% of balls were kicked in the middle but goalies stayed and protected the middle only 6% of the time.
What does this have to do with investing? Humans are wired for action even though sometimes inaction may be advantageous. Keep this in mind as you evaluate decisions, especially during periods of market volatility. Dive beyond the headlines and stick to a long-term strategy rather than responding to all the noise.
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