Download Our clients and readers of this monthly Outlook know that, since the

Our clients and readers of this monthly Outlook know that, since the end of the recession
in 2009, we have been bullish on the U.S. economy and thus, the U.S. stock market. We
take a long view on our time horizon, as is necessary when investing client assets with
long-term goals and objectives.
With the impasse in Washington, we have had several inquiries from clients wondering if
there is something different we should do. Understandably, there is concern the
politicians will cause irreversible harm to the still weak economic recovery. The last
time we had an impasse was in the summer of 2011, when the market dropped 20%.
While it is certainly possible for a similar drop this time, other factors are much more
conducive to keeping a sell-off at bay. In 2011, we were in the midst of multiple crises in
Europe, none of which was manufactured like what we are currently facing in the U.S.
There was a fear of bond defaults in Greece, Spain and Italy, and interest rates had
skyrocketed as a result of real concern as to whether these countries would be able to
make debt payments. Additionally, China was significantly tightening their monetary
policy and slowing down their economic growth. The U.S. was an island of growth in a
world that was in a global recession.
Today, the world is in recovery. The news coming from Europe is very encouraging;
most countries in the region have begun an economic recovery, while others have
stemmed their decline. China has started to reaccelerate as government policies have
moved from constraining growth to promoting growth. U.S. multinational corporations
are finally seeing growth in regions that have had a negative impact on both revenues and
earnings. We have seen unemployment claims drop to their lowest level since 2007, a
reacceleration in manufacturing data, and record profits from corporations.
Nine days into the government shutdown, the S&P 500 is down just 1.5%. The market
recognizes that once the budget stalemate is resolved, the focus will return to the
underlying strength in the global economies. With the Fed continuing to hold the line on
interest rates, investors will put their money in the only asset class that has promise of
positive returns. The stock market is not as cheap as it was a few years ago; however, it
still offers value - trading at 14 times next year’s earnings.
The short-term market volatility will come to an end once there is a resolution in
Washington. We continue to believe in staying the course of emphasizing stocks over
bonds in our client portfolios.
Thomas W. Wirth, CFA
Senior Vice President &
Senior Investment Officer