I checked off a key bucket list item this month when Carrie and I traveled to South Bend to experience a Notre Dame football game.   The fact they were playing Pitt that Saturday made it even more special. 

I had built up a lifetime of prejudices about Notre Dame.  I anticipated a snobby aura around campus and town but was I off base.  

The whole place is just Indiana friendly.  The locals, fans and alumni know their university is academically elite and their football tradition is unrivaled, but they can't help themselves to make you feel welcome before, during and after the game.  The campus, the band, the stadium, the atmosphere and the town is the epitome of what is right about the college football experience.

Notre Dame was founded in 1842 by a group of French-speaking Catholic priests – so why the Fighting Irish nickname?  Well, Notre Dame's football program started in 1887 and gained quickly gained national recognition as a powerhouse. 

Would you believe the football team's original nickname was the "Catholics"?  Fortunately, it didn't stick, nor did other uninspiring nicknames until legendary coach Knute Rockne took a liking to the Fighting Irish appellation and persuaded the college's president to adopt it permanently in 1927 – despite no Ireland connections whatsoever.

They do have a problem deciding if their school colors are blue and gold or green and gold, but I nitpick.

To my surprise and delight, Pitt, a decided underdog, actually came to play for the first time all season and gave a Notre Dame a good scare before losing a tense, competitive game.

It is not especially easy to get to South Bend, but it's definitely worth the effort even if you're ordinary Methodists like us.

In light of the crazy stock market gyrations this week, allow me to assess the investment landscape as we move deeper into the fourth quarter, taking score and providing some perspective about a frustrating year for many investors.

History informs us that October can be scary time for stock investors and this month is shaping up to be worst for the stock market since February, 2009.  It has been a year of extremes:  the best market start in history in January, followed by a violent market correction and then yet another strong market rally in mid 2018 - then ugly October.

After the market slump of October 24th, what remained of the healthy year-to-date gains in the S&P500 Index were entirely wiped out, all this month.   The NASDAQ index of technology stocks fell into a market correction (10% decline) off its September record high. 

The S&P 500 index is flirting with a market correction as well, but that's misleading – the average large cap stock is already there.  Per Wall Street Journal, if you separate out of the index the FAANG stocks – Facebook / Amazon/ Apple / Netflix / Google – about 70% of the stocks in the S&P500 are trading 10% or more below their 52-week highs and 30% are trading in bear market (20%) territory in 2018.  Where's that headline?

Don't tell anyone, but the US stock market volatility is making the lives of investment advisors a little easier.  Investors with diversified portfolios who opened their September 30th, 2018 statements were perturbed to see large, mid and small cap stocks with healthy positive returns in 2018, while their international and emerging market stock funds both posted double digit losses.  

Adding insult to injury were investment grade bonds, which are down a couple percentage points in 2018 and tracking for one of its worst years in memory.

The upshot is the track record of the traditional "60% stock – 40% bond" globally diversified model portfolio at September 30th was as uninspiring as Notre Dame's first nickname.  It's understandably frustrating for investors who take our advice to diversify their portfolios and then get punished for it.

The first few weeks of October have turned the asset allocation tables.  International equity and bonds have rallied, while US stocks have plunged, so October investor statements will likely look much different than in September.

The October stock market swoon has no single cause, but rather has been stew of worry about rising interest rates, budding inflation, a slowing global economy and global trade tensions.  The concern is that one or a combination of these factors will turn into a major drag on the US economy as soon as next year, so some skittish stock investors are voting with their feet now.

Where does the US stock market go from here?  Thanks for asking. 

I'm not feeling edgy just yet.  Third quarter earnings reports published this month remain strong, helped in part by record stock buy backs.   I just saw an initial 3Q18 GDP report of 3.4% (nice) and the US economy is still humming along at a robust pace. 

To be fair, there are some pockets of concern in the US stock market, especially in the over-heated technology sector because many tech stocks are priced for perfection and we know that perfect is overdone. 

The Fed Reserve is behaving as telegraphed, normalizing interest rates as the economy improves, so the three rate hikes in 2018 (and one planned for December) should not come as an investor surprise. 

Trump's recent tantrum about the Fed's monetary policy was strange but not incorrect.  If the Fed moves too quickly to bump short term US interest rates, it could stall the US economy, but their moves so far have been measured and appropriate.

Speaking of Trump, keep an eye on the big trade summit between the US and China next month.  The Chinese stock market is in a deep bear market over its slowing economy and trade stress.  If a trade deal is cut, it could serve as a catalyst for a Chinese stock market rally.

In sum, put October out of mind, stay fully / globally invested and be sure to read our 2019 investment outlook blog in January to check our mood then.

Until next time, be well….Tim

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