October sure is living up to its reputation as the wildest month of the year for the stock market.
Words like “capitulation” and “panic” were thrown around this week as stocks suffered their longest streak of losses since the days just before President Donald Trump was elected in November 2016. All told, the S&P 500 and Nasdaq Composite shed 5% for the week.
Traders hoping for a positive catalyst may appreciate the timing of the sell-off: over the next few weeks, public companies will report third-quarter earnings results, and analysts expect profit growth of above 20% for a third-straight quarter, according to FactSet.
That’s one of the reasons why UBS Global Wealth Management, the $2 trillion-plus investor for ultra-rich individuals and families, isn’t recommending throwing in the towel on US stocks just yet.
“We’re still yet to hear from many companies that have either minimal exposure to China or aren’t going to face the same type of cost pressures because of the rise in commodity prices due to increase in tariffs,” Jeremy Zirin, the head of Americas investment strategy, told Business Insider.
Interest rates aren’t too high yet
Besides the relief that may come from strong earnings, UBS is taking a different view of one of the key catalysts of this week’s sell-off: the Federal Reserve.
Even President Donald Trump pointed fingers at the Fed, calling it “crazy” and “going loco” in remarks that were unprecedented. The concern is that higher borrowing costs will tighten financial conditions and hurt corporate and consumer spending.
However, Zirin says credit standards as still easy, based on the Fed’s Senior Loan Officer Survey.
“Banks are easing credit standards, which have historically been a solid leading indicator for profit growth,” Zirin said. “While the Fed is raising interest rates, it is doing so at a