Black Cypress Capital Management

Since our last commentary in January, U.S. stock markets have shrugged off a shallow industrial recession, slowing employment growth, “Brexit”, and a plethora of other negatives. The S&P 500 has risen over 15.0% since late January.

The third quarter is now on the books and it was an ugly one for stocks. The S&P 500 fell 6.4% while the Russell 1000 Value, arguably one of the best indices to benchmark “value” stock performance, was down 8.4%.

About this time in a market cycle, after several years of strong stock market returns, there is a tendency for investors to become more tolerant of risk. One may find his or herself questioning the reasoning behind their current asset allocation and strongly considering adding more stocks and other “risk” assets to their portfolio.

The U.S. economy should continue to expand and that bodes well for stocks. The next bear market will likely start due to a recession or geo-political conflict and not from the start of Fed interest rate increases or time elapsed. The current economic landscape is favorable to growth. Stock markets are priced for low returns.

Every time the stock market falls 3% or 4%, investors start to act like were staring at an oncoming locomotive. Though, each train has been the sort from Mr. Toads Wild Ridenot really a train at all, just bright lights and sounds meant to scare us.