Source: Ned Davis Research
The market experienced a 10% correction in the first quarter of 2018 and while there’s a chance we’ve already experienced the normal mid-term market correction, it would not be surprising to see an additional correction or consolidation ahead of the elections.
Focusing on Fundamentals
For investors, fundamentals are what matter in the long-run, and we believe current fundamentals remain positive. The Conference Board’s Leading Economic Indicator index recently hit an all-time high, and shows no signs of rolling over, which it has historically done about 11 months prior to a recession. Furthermore, weekly initial jobless claims are at their lowest levels since the late 1960s, reflecting strength in the job market, which is critical for a consumption led economy. Corporate earnings, which are a critical driver of stock prices, are growing at the strongest pace since 2010.
Investors should remain positive on the U.S. economy, and expect the current economic expansion to continue and accelerate into 2019 with the odds of a recession this year very low. Recognizing that we are likely in the late cycle phase of the economic expansion, we believe the fundamental backdrop remains supportive for risk assets including equities and high yield bonds.
While investors should expect some volatility ahead of mid-term elections, it’s important to let them know that any volatility we experience is likely to be short lived, and to stay focused on their long-term goals and objectives.
Sean Clark is the Chief Investment Officer at Clark Capital Management, which is a participant in the ETF Strategist Channel.
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