Last week several equity markets fell sharply lower, however we should not overreact to this overdue pullback. Pullbacks are a normal and necessary occurrence in the world of investing. It is actually an opportunity to invest further into high quality dividend paying stocks. Everything is on Sale! Like with every correction there are always a multitude of reason why they occur. I explain below some of the reasons behind this pullback, and what we should do about this.

Why did this correction occur is what many of you may be wondering. Here are some reasons why:

• The run-up in Treasury yields and related concerns about a higher interest rate regime
• Perceptions by some that the Federal Reserve may shift to an unnecessarily aggressive rate hike pace (RBC disagrees about this)
• The decline in global technology stocks which occurred due to tariff risks, regulatory threats, above average valuations, and sign of peak activity in bellwether semiconductors
• The U.S.China trade dispute
• China’s slowing economic momentum
• US Q3 earnings season and strong dollar
• Back to normal growth rates for U.S. corporate earnings

Keep in mind though, that the S&P 500 has had the strongest quarterly performance in almost five years. Also, US equities are usually volatile in October and in midterm election years and 12 months prior to elections.

One thing we do know for certain, that once the dust settles, equity markets will be rallying again.

How do we know that markets will recover?

• Investing 101: Major asset classes, over time, will rise (stocks, bonds…). The value of these core assets will grow faster than the value of cash.
• The current fundamental economic and earnings growth longterm views have not changed.
• Forward looking indicators are still signaling the U.S. economic expansion will persist for the next 12 months at least.

The laundry list of concerns that I listed above does not need to be resolved in order for equity markets to start rebounding. This may take time. We will know that markets have started recovering and that we are moving in the direction when we see the following happening:

• Treasury yields settle down
• Tech stocks stabilize
• Q3 US earnings show some respectable numbers then we are moving in the right direction.
• Negative investor sentiments- yes you read correctly. The attitudes of general investors is almost always a contrary indicator.

Albeit the recovery process after a correction can take some time. It is likely that the issues weighing on U.S and global equities will take some time for markets to sort through and adjust. This means we could be seeing some more pullbacks.

So, what should you do during periods of correction?

• Remain invested and stay the course
• Do not make investment decisions based on current events
• Invest more if you have cash available into high quality dividend paying investments
• Reach out to me if you are feeling nervous. My job as an advisor is to help you get through these times

Hence economic, credit and earnings cycles remain favorable for equities. We should not overreact to the recent moves. Corrections usually take some time to play out and rarely end quickly. Having said that, we are in a late-stage economic cycle environment (bull market), so volatility will remain elevated.

As investors we must make portfolio decisions thoughtfully and in line with long-term goals. And most important… we need to keep calm and invest on!

Yours truly,

Najia