The stock market was weak this month despite a generally good although certainly not robust start to third quarter earnings season, as it appears that the recent spate of quarterly earnings declines may be reversing. The primarily culprit was rising bond yields, as the market begins to anticipate another rate hike from the Federal Reserve in December. I have repeatedly stated that historically low interest rates have been one of the pillars of the bull run. Accordingly, the move away from that condition quickly creates problems.
My outlook remains cautious and conservative. Because I have maintained such an outlook for a long period and the market has been treading water for over two years now, it may feel like this is becoming a permanent situation. I want to assure you, however, that my outlook will follow suit as valuations change. I certainly look forward to a fully invested posture, but that can only occur as more attractive opportunities present themselves (as they always do in due time).
This month I added to my United Technologies holding while trimming my position in Intel. United Technologies is one of the premier industrial companies in the world and yet trades at a discount to peers like General Electric, 3M and Honeywell. I believe the discrepancy is only temporary. Intel simply had advanced significantly from my purchase price and was thus no longer as cheap (I sold it above 38 prior to the earnings miss and price decline).