Not A Spooky October

October brings the start of the third quarter earnings reporting season, and with 65% of the S&P 500 companies reporting, revenue and earnings growth have been 8% and 11%, respectively. Fourth quarter earnings are expected to rise 7.3% year over year, helping to no doubt support a U.S. stock market that has hit record highs this year. And at its October meeting, the Federal Reserve lowered its benchmark overnight borrowing rate to a range of 3.75%-4.00%. The Fed also announced that it would end its reduction of asset purchases, or quantitative tightening, on December 1. Strong earnings and ample liquidity look like tailwinds to stocks. Through October 31, the S&P 500 has risen 17.5%, led by the information technology and communication services sectors. 

Not to be overlooked, however, is the stock market concentration (34% of market capitalization) in the top 10 stocks which are driving the S&P 500’s forward price/earnings valuation to 23.5 times forward earnings, well above its five- and ten-year averages. Given these companies’ revenue and earnings growth, as well as high profit margins, perhaps these valuations are deserved. What longer-term role artificial intelligence capital expenditures or applications are playing in valuations remains to be seen.

What can be observed clearly are multiple geo-political trouble spots - Ukraine, the Middle East, Venezuela, U.S./China relations, and the ongoing use and threats of tariffs on friends and foes alike. Add a U.S. government shutdown that shows no signs of ending; there seem to be many negatives on which we could focus. Most of these are out of our control though. To ignore them would be foolish, but to acknowledge them, prepare, and focus on what is within our control would seem to be a reasonable path.

As we review many third quarter earnings reports and meet with many clients, LVM’s focus does not deviate from our clients’ investment objectives. Managing portfolio asset allocation, asset location, position sizing, income generation, capital gains, assessing securities valuations, and weighing tax consequences are all within our scope. As we enter the Thanksgiving season, LVM is proud to serve you and continues to carry out this focus for your long-term wealth management success.