From the Desk of the PM
October 29, 2018 |
It looks like some of the issues we have been concerned about, namely rising interest rates and the trade war, have finally caught up to us. In addition, there have been some high profile missed earnings, bombs being mailed to prominent figures, BREXIT, and Italy’s budget crisis. Discourse at home and abroad is not helping. The result has been that October has been difficult to endure.
So far, it has been the worst October performance for U.S. stocks since 2008. As of the October 26th close, the SPDR S&P 500 ETF is down 9.6%, the iShares MSCI All Country World Index (ACWI) ETF -13.0%, the iShares MSCI ACWI ex. U.S. ETF -19.6% and the iShares Core U.S. Aggregate Bond ETF -2.5%. This correction has been a little unusual as defined by the chart below. As you can see, the previous three declines in the S&P 500 index have had roughly equal up and down days during the decline. This one has seen an almost 4 to 1 ratio in declining days.
Source: Bloomberg
The recent market turmoil has caused our systems to react:
The systems are doing what they are supposed to… positioning for the potential continuation of market volatility/drawdown while maintaining appropriate market exposure as we are not trying to defend against all losses, just large ones. All three of our systems are designed as growth strategies that have the capability to avoid large losses. Our definition of large losses excludes ordinary market declines of 5-10%. Why? Because this range of decline has happened, on average, almost three times a year since WWII. They are a re-occurring, natural part of the market’s ebb and flow.
We believe it is worth noting that the S&P 500 is still roughly flat year-to-date while the NASDAQ remains in positive territory. That being said, the S&P 500 Index is nearing correction territory and the BCM Investment Committee is monitoring the situation closely. We are poised to take additional action as our three rules-based systems dictate. Please remember that no one knows the future direction of the markets in the next days, weeks and months. We will remain disciplined and act accordingly.
If you have any further questions please don’t hesitate to contact us.
Sincerely,
David M. Haviland | Managing Partner & Portfolio Manager
Denis J. Rezendes | Assistant Portfolio Manager
Sources and Disclosures: