by Chad Meyer CFA

With class officially back in session, it is perhaps fitting to greet fall with the words of an author familiar to most American students. “October,” wrote Mark Twain, “is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.”

If there’s any truth in numbers, it appears Mr. Twain was at least partially mistaken. Rather than unleashing “peculiar” peril, July, August and September offered the kind of across-the board gains to which American investors have, by this point, become accustomed. In the third quarter of 2018, the Dow Jones rose roughly 9%, while the S&P 500 and the NASDAQ both posted gains of over 7%. Driven in large part by continued robust earnings growth, each index closed out September near record highs, with the S&P drawing particular praise for its strongest quarterly showing of the last five years. Stepping back to a macroeconomic perspective, the story stays much the same. Real GDP growth is expected to clock in at an annualized 4.2%, consumer and executive confidence is high, and joblessness claims have reached lows not seen since the 1960s.

And yet (to invoke the spirit of Huck Finn) there’s always the prospect of mischief hiding in the rafters. From global concerns, such as heightened trade tension between the U.S. and China, to more discrete indicators, like decelerating auto and housing markets, many forecasters see cause for caution moving forward. Nor, it would seem, are they alone. Weary of an overdue correction, retail investors have begun retreating into the safe embrace of bonds.

Granted, some of this bet-hedging is inevitable in the context of a historic bull-market run. There is, one might say, an intuitive logic to looking for one’s chair once the record starts playing on repeat. But setting that generalized anxiety to the side, it is also clear that a new consensus is forming around the market’s former “can’t miss” stocks. Once considered an unshakeable growth engine, Facebook is now on course to finish the year down in both market capitalization and corporate reputation. And while its “FANG” peers will almost certainly turn in respectable year-over-year growth, their status as the horses pulling the cart appears shakier by the day. Indeed, as I write this, the headlines are breathlessly reporting the $125 billion loss that attended to that group’s recent (and record high) single-day loss. Toss in the fact that over eighty percent of this year’s initial public offerings have involved unprofitable companies, beating a record previously set in 2000, and it may be tempting to get a bit breathless yourself.

With all manner of portends, favorable and fearsome, swirling around the marketplace, where exactly is your team of investment professionals turning its attention? Put briefly, towards opportunity—the sort that the “can’t miss” crowd often overlooks. As the cracks begin to show on the vaunted “FANG” gang, we believe investor attention will drift towards our more value-oriented neck of the woods. If it does, we are uniquely well positioned to capture the upside of a “sector shift” on your behalf.  More tellingly, though, even if the market stays much the same, with the high-flyers rising back into orbit, we remain confident that our disciplined approach will continue to provide impressive performance at an acceptable rate of risk. That, in a word, is the beauty of buying on the fundamentals. From all of your advisors here at Tufton Capital, we thank you for the trust you have placed in us, and we remain committed to the steadfast pursuit of your interest, all twelve months of the year.