This Week in Review | Q3 Earnings, US–China, Bull Market Turns 3, Gov't Shutdown

Transcript

Paige Tyson:

Hello, and welcome to This Week in Review.

This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, Q3 earnings season.

Q3 earnings season kicked into high gear this week, with investors getting results for major US financial firms. What do these reports reveal? Many large banks beat earnings expectations, posting higher quarterly profits than the same quarter last year, suggesting economic activity seems to be chugging along nicely. These banks highlighted various trends, including a rise in dealmaking, increased capital markets activity and healthy capital positions supported by favorable market conditions, such as a steepening yield curve. Still, some banks pointed to perceived risks, such as a few high profile corporate bankruptcies and rising student and auto loan delinquencies.

However, we believe these widely known and heavily discussed topics are unlikely to pose a significant threat to the economy. Forward looking stocks tend to absorb and price in such fears well in advance. Overall, Q3 earnings growth is estimated to be 8% year-over-year, marking the ninth consecutive quarter of earnings growth, signaling as strong and resilient market environment for stocks in general, not just the financial sector.

Next, US-China trade tensions.

Simmering trade tensions between the US and China generated more spurts of negative market volatility over the past week, with stocks experiencing a few big intraday swings. Much of the escalation has already been walked back, but the volatility has some investors feeling uneasy, wondering if more downside could be around the corner and how much weight to give the potential risks from trade tensions. We'd encourage long-term investors to recall the stock market's rebound from tariff related volatility earlier in the year, which illustrates the market's increasing resilience to trade issues. While we continue to monitor developments closely, trade tensions are nothing new for investors or the stock market.

Tariffs have been a top headline in media publications for over six months now, giving investors and markets plenty of time to weigh various potential tariff related outcomes and contingencies. Looking back to earlier this year, the US and China called for much higher tariffs than the most recent announcement. Yet, trade didn't collapse. Companies found creative solutions such as rerouting trade through other countries and labeling products differently. Now, these developments may stir up some short-term uncertainty, but for long-term investors, it's all about staying focused on the fundamental economic trends and sticking to your long-term goals, even during times of geopolitical tension.

Next, happy third birthday to this bull market.

This past Sunday, October 12th, marked the third birthday of the global bull market. As we wrote recently in MarketMinder, this milestone is a great opportunity to look back and highlight a few key investment lessons it's provided us the past three years. The first lesson—bull markets don't need great news to begin. Back in 2022, stocks hit a low on October 12th, down just over 26% from January of that year. But it was a rare sentiment driven bear market. Inflation was high. Recession fears loomed. Russia invaded Ukraine, and the Fed was hiking rates. Yet, amidst the gloom, a bull market was born. Not from great news, but from stocks simply expecting reality to turn out better than feared. Lesson two—old fears die hard. History shows investors tend to fight the last war, focusing on what caused the last downturn, fearful it will drive the next one. After the 2008 financial crisis, it was hidden debt. After the 2020 Covid crash, It was pandemic restrictions. And in the wake of the 2022 bear market, inflation became the dominant fear. And while inflation has since cooled from a peak of 9% in mid-2022 to a historic norm of under 3% today, many still feel it sting. While inflation is still in the news and driving fear among many investors, we view this as a brick in the wall of worry this current bull market continues to climb.

To the degree lingering inflation fears help keep a check on sentiment, this can lower expectations and support the positive surprise that fuels bulls. Our final lesson is that bull markets are resilient. This past year provides an excellent example of that. April's Liberation Day tariffs caused a sharp correction, with global stocks dropping over 16%, but markets quickly rebounded, reaching new highs in June, proving their resilience. And volatility, like the correction earlier this year, is something investors should expect along the way. It's the price tag of high return stocks deliver over time, which historically have a 9-10% average annualized return, inclusive of corrections and bear markets over that time. So take a moment, look back on the past three years and think about the investing lessons this resilient bull market has given us. And as always, for long-term investors, we'd encourage you to stay focused on your long term goals and objectives. Don't let short term noise derail your strategy.

Finally, the US government shutdown continues. As we continue to monitor the ongoing government shutdown, the uncertainty and hardship for federal workers remains a real concern for those affected by the shutdown. While some federal workers are on unpaid furlough, others deemed essential continue their duties without pay. And over the weekend, the Trump administration announced layoffs for approximately 4000 federal employees across several federal agencies. Although a federal judge has since paused those layoffs, the impact for federal workers has been very real, and we empathize with all of those affected. But in terms of the national employment landscape, the impact is likely more limited. That's because federal employees constitute less than 2% of the US workforce. But is the government shutdown any closer to a conclusion? It very well could be by the time you're watching this. But the exact timing is unknowable now.

The key issue surrounding the government funding deal is the debate over extending Affordable Care Act tax credits. Republicans and Democrats are at an impasse. Though some informal discussions are reportedly underway, exploring potential compromises like new income caps for subsidies. For investors, it's important to remember that financial markets tend to focus on broader economic implications. No government shutdown has been the proximate cause of a bear market. And while shutdowns can hamper sentiment in the short term, stocks have historically shown an ability to move on quickly, with stocks posting strong returns in the period following shutdowns. In the meantime, we will continue to monitor the ongoing shutdown and will provide updates as the situation evolves. But we don't expect this latest impasse to derail the current bull market.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com any time for our latest thoughts on markets. Thanks again for joining us, and don't forget to hit "Like" and "Subscribe!"