The stock market experienced significant volatility this past week. It's during times like these that we are particularly comfortable with our diversified approach to investing. Although we have not received concerned calls from our clients, we decided to briefly address the stock market reaction.
We feel the current market correction is mostly related to headline news. Some of the headlines that recently affected investor sentiment include slowing growth in foreign countries, decrease in oil prices, the Ebola outbreak, the ISIS threat, and sanctions against Russia. With quantitative easing projected to end next month, some investors are fearful of increasing interest rates.
We anticipated increased volatility this year, and a correction has appeared imminent over the past few months. In fact, we may have not yet reached the bottom. Who knows? Despite the correction and headlines, most U.S. companies are well positioned with higher cash balances and lower debt ratios on the books than we've seen in several decades. In some cases we've never seen higher cash balances and lower debt. U.S. stocks as a whole do not seem to be significantly over-priced, which would justify a correction, but have been around reasonable price levels. Local energy production has decreased cost for many U.S. companies. Manufacturing has started to move back to U.S. soil. Corporate earnings continue to outperform expectations on several levels. All of these circumstances should bode well for U.S. equities. Our exposure to foreign stocks is limited. Since the drop was likely caused by headline news, we expect the correction to be a relatively short-term reaction that should not have a long-term impact. Several of our stock managers actually see the current state of the stock market as a buying opportunity. We do not anticipate severe interest rate increases, but expect rates to gradually increase over the coming years.
Keep in mind that a correction brings opportunity. Our diversified approach allows us to take advantage of these opportunities. We are considering selling some of our bond positions to buy U.S. equities at discounted values. We keep our eyes open for opportunities during times like these.
Please don't hesitate to contact us with any questions or concerns.
Your Cornerstone Team