No Real CAT-alyst for Sell-off

by: , Portfolio Strategist, New York Life Investment Management

The equity markets sold off yesterday (with the S&P 500 down -1.34% and the Dow down -1.76%), even though corporate America is well on its way to a record-breaking profit season. So, why the sell-off?

Pointing the Finger

It’s tough to say. A surging 10-year U.S. Treasury yield might have something to do with it. If you check the news, some are laying blame on Google’s aggressive capital expenditures, which came to light on last night’s earnings call. While others are attributing the sell-off to a single line from Caterpillar’s (CAT) call this morning: that first-quarter profits will be the high-water mark for the year, due to higher investment spending. The way we see it, a surging 10-year is a sign of economic strength. And, affirmations of business investment from CEOs show promise for long-term improvements in productivity.

Value Shows Its Value

Beginning around the start of the second quarter, value has managed to edge out growth, a trend we expect to continue.

Value vs. Growth (March 26, 2018 – April 24, 2018)

Source: Thomson Reuters Datastream, as of 4/24/18. An investment cannot be made directly in an index. Past performance is not a guarantee of future results. Index definitions can be found at the end of this blog post.

Bottom Line

The truth is, the market is down because sometimes the market goes down. We believe that it would be short-sighted to leave the equity market at this point. If anything, investors should be more willing to participate today, than at the start of the year:

  1. Sentiment is lower than the start of the year.
  2. The same is true with valuations, which are close to average levels.
  3. And most importantly, the global economy remains on solid footing, despite geopolitical and trade fears.

If you or your client are feeling nervous from the stock market zigzags, it may be time to reassess your risk tolerance and investment mix.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

About Risk

All investments are subject to market risk, including possible loss of principal. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

Index performance is shown for illustrative purposes only and does not predict or depict the performance of the Funds. Indices are unmanaged, include the reinvestment of dividends, and cannot be purchased directly by investors. Past performance does not guarantee future results.

Treasury Securities are backed by the full faith and credit of the United States government as to payment of principal and interest if held to maturity.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

The Russell 1000 Index is an index of approximately 1,000 of the largest companies in the U.S. equity market. … It represents the top companies by market capitalization. The Russell 1000 typically comprises approximately 90% of the total market capitalization of all listed U.S. stocks.

S&P 500 Index is an index of 505 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion.

New York Life Investments is a service mark and name under which New York Life Investment Management LLC does business. New York Life Investments, an indirect subsidiary of New York Life Insurance Company, New York, New York 10010, provides investment advisory products and services. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. NYLIFE Distributors LLC is a Member FINRA/SIPC.


Robert Serenbetz

Portfolio Strategist, New York Life Investment Management

Robert Serenbetz is the Portfolio Strategist with New York Life Investment Management’s Multi Asset Solutions (MAS) team. He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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