Domestic Markets – 3Q19 Review
U.S. equities continued their march higher in the third quarter, with the S&P 500 Index posting a return of 1.7%. The 3Q advance results in a year-to-date gain of 20.6% – the strongest cumulative three-quarter return for the S&P 500 since 1997. This is not to suggest that there have not been pullbacks along the way; yet as has been the case for much of the current bull market, weakness in stocks has generally been a good buying opportunity for investors thus far in 2019. As we approach the fourth quarter, we believe an uptick in volatility is likely to be a safe forecast.
Extending the timeframe a bit, the S&P has been fairly rangebound over the past two years – a function of market fatigue, lack of catalysts, and ongoing trade/economic and political infighting. The push/pull on topics such as U.S.-China trade talks, monetary policy, yield curve inversion, and political posturing continued in the quarter – capped off by an announced impeachment inquiry. The market has largely managed to shrug off many of these uncertainties, although the lack of clarity (particularly on trade) is clearly having an impact on corporate spend projections.
In a welcome break from trend for price-sensitive managers such as Cambiar, large-cap value stocks kept pace with their growth counterparts for the quarter, while solidly outperforming in the small-cap asset class. The positive sentiment towards value coincided with the September recovery in bond yields – which incurred their own roller coaster of sorts during the quarter. Will the rotation to value have legs, or was this move nothing more than a brief pause for growth stocks? Cambiar is not inclined to make a market call on this front. What we would highlight is the intersection of reasonable valuations and attractive fundamentals in which many of our companies reside. We acknowledge that overcapacity in a number of traditional value industries is a very real concept and that low valuations in and of itself does not mean that stocks can not go lower. That said, we remain of the belief that a rigorous underwriting process that marries quality and value-creating attributes with appropriate attachment points can lead to excess returns over a market cycle.
Certain information contained in this communication constitutes “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar. Due to market risk and uncertainties, actual events, results or performance may differ materially from that reflected or contemplated in such forward-looking statements. The information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation. Securities highlighted or discussed have been selected to illustrate Cambiar’s investment approach and/or market outlook. The portfolios are actively managed and securities discussed may or may not be held in client portfolios at any given time, do not represent all of the securities purchased, sold, or recommended by Cambiar, and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics/charts are based upon third-party sources that are deemed reliable; however, Cambiar does not guarantee its accuracy or completeness. As with any investments, there are risks to be considered. Past performance is no indication of future results. All material is provided for informational purposes only and there is no guarantee that any opinions expressed herein will be valid beyond the date of this communication.