Penobscot Investment Management
Penobscot Investment Management


Quarterly newsletters and announcements

Third Quarter, FY2018 newsletter

On August 22nd the U.S. marked the longest growth streak in history. In the third quarter ending September 30, the S&P 500 Index had its biggest quarterly advance since the fourth quarter of 2013, soaring 7.7%. The Dow Jones Industrial Average was up more than 2,100 points or 9.6%.

The market experienced steady gains with limited volatility in the third quarter. The fears of inflation and tariffs faded as investors focused on the strong economy and stellar corporate profits. The U.S. economy grew at 4.2% in the second quarter, while corporate earnings grew at double digit rates and the CBOE Volatility Index dropped 19% over the third quarter.

The bull market began in March of 2009 and continues to frustrate and confuse bearish investors. Looking at certain indicators, there is reason to believe that the bull could live on. The U.S. Leading Economic Indicators Index is on a strong upward trend, suggesting the U.S. economy will continue expanding for the remainder of the year. Credit spreads or the difference between junk bond yields and treasuries, are narrow, and interest rates, while rising, still remain historically low.

The previous longest growth streak was in the 1990’s followed by the dot-com bust. History suggests we are due for a recession, but a recovery doesn’t just die of old age. We are in a healthier state today than the 1990’s, GDP is growing but more slowly, businesses are not over-investing, and inflation and wage growth are increasing at a tepid rate.

There is a positive tone in the market, nevertheless tides can change quickly. Markets are trading at all-time highs, the yield curve is flattening, and the trade war and dysfunction in Washington continue to cast uncertainty on Wall Street. While we continue to monitor these factors, we believe the strong economic backdrop will prevail.

Though it seems we have been in extra innings for a second year, we cannot predict where the market will go from here. A downturn will eventually come, but no one can know when that time will be. Penobscot’s philosophy of investing in companies with a proven track record of consistently increasing earnings and dividends is a proven source of growth, and it will provide a strong defense when the next reversal occurs.

As always, we welcome your comments and questions, especially in the context of your year-end planning.