October 23, 2018

In view of the high market turbulence we are experiencing in October, our view on the S&P 500 index can be summarized in this Market Update.  October is turning out to be the worst month for the S&P 500 since August of 2015. In addition, the NASDAQ index is having its worst month since November 2008. The market is trading down in 11 of the last 13 trading days (sessions) so far this month. That being said, here is our take on the market fundamentals and the technical indicators we follow:

 
In regards to the fundamentals of the S&P 500, the most recent Earnings Insight report from FACTSET© dated October 19th indicates the 3rd quarter estimated earnings growth (Year over Year) for the S&P 500 is 19.5%. If 19.5% is the actual growth rate for the quarter, it will tie the mark for the 3rd highest earnings growth since the 1st Quarter of 2011. This is important given corporate earnings have the highest correlation to rising stock prices. Keep in mind that while bear markets precede recessions, this is hardly the earnings environment from which recessions are born. In other words, “No Recession - No Bear Market.” 
 

In regards to the technical market indicators, the S&P 500 is holding support established in May 2018.  We would consider the near term trend to be cautionary, but the longer-term trend is still up.  We focus on the longer-term trend to make portfolio decisions. 

 

In summary, our take is that this is still just a market correction, which is healthy for a long-term bull market. We believe that this market will resume the uptrend as we see more companies report good earnings.  If we don’t see this happen and the trend changes to the downside, we will take action to reduce risk in our portfolios.

The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors or its affiliates. The material has been prepared or is distributed solely for informational purposes and is not solicitation or an offer to buy any security or instrument or to participate in any trading strategy.