Q3 Market Commentary

Our investment team at Heritage continues to closely monitor the current market situation. We understand these periods cause a range of emotions for investors. When markets are volatile and emotions are running high, uncertainty needs to be addressed.

 What do we know?

The third quarter saw the U.S. equity market experience its first real correction (defined as at least a 10% drop on closing values) in four years.  The last correction was in the summer of 2011 during the debt ceiling fiasco when the U.S. lost its AAA credit rating.  Concerns over the Chinese economy, a drop in the Chinese equity market, and concerns over its impact on emerging markets helped spark the selloff.  The primary concern was the effect the slowing of the world’s second largest economy would have on the rest of the world.  However, we do not feel at this time that global weakness is enough to derail the U.S.

 What’s ahead?

While a market correction can be unnerving, we do not believe we are entering a bear market, as bear markets are typically caused by recessions, aggressive Federal Reserve tightening (inverted yield curve), or geopolitical conflict.  Currently, the economy is still growing, and economic indicators such as the low unemployment rate and continued strength of the U.S. consumer demonstrate that the economy remains strong.   The expectation is that the Federal Reserve will begin slowly raising interest rates by the end of the year.  In fact, we believe this is warranted, and that a rate hike would give confidence in the American economy.

Our Perspective

In summary, while market corrections can be painful in the moment, it is our belief that the market was overdue for a pricing readjustment, a normal occurrence in bull markets.  To put this into context, over the past 35 years, the S&P 500 has had intra-year average declines of 14%. While it can be challenging to stay the course, we believe this is an opportunity from which future gains can be made.  This creates an opportunity to focus on your asset allocation and investing for the long term.  History has shown that patience will ultimately be rewarded.

Thank you for your continued confidence in Heritage.  If you have any questions or concerns, please don’t hesitate to contact Jeff Asher, Director of Investments, at jasher@heritagetrust.com.