Volatility and Equity Prices Rise Together

Volatility and prices rise together, as markets shrug off government shutdown.

Second quarter GDP was revised much higher and 3rd quarter GDP, according to the Atlanta Fed is expected to be +3.8%. On average, the return for the 4th quarter is typically twice as strong as the other three quarters of the year and positive in 80% of occurrences. In the same token, the 4th quarter of a post-election year is also strong with a 78% probability of a positive return.

Historically, when new highs are made in the month of September, October tends to be good.

This year's September return of +3.5% is the best September return in 15 years and the 2nd best return in 27 years. The S&P 500 Index has made two new all-time-highs in the first two trading days of October, which coincides with the beginning of the shutdown. The last time that happened - 1968, 1996, & 2017. How did the 4th quarter turn out in those years: +4.6% (1968), +7.9% (1996) and +6.1% (2017). The reality is the average length of a U.S. government shutdown has been 8 days and the S&P 500 Index has ended higher one year after a shutdown at least 86% of the time.

While no two markets are exactly alike, instead of valuations being the primary concern, inordinate risk-taking by individual investors is more of a concern. That being said, this

market is not exactly like the Dot.com market of 1999. The number of internet companies that came to market by December of 1999 was greater than 450. Ten years later, approximately 20 pure internet companies remained as actively traded stocks on the exchange. Today, only about 30 pure AI companies are traded on the NYSE. Most of the companies involved in AI - Google, Apple, Microsoft, Amazon, Meta, Tesla to name a few - have multiple other sources of revenue and are not solely dependent on AI. For now, investors should stick to their investment plans and invest accordingly in equities, but also not necessarily be looking for the next market crash.

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The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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