If you’ve been watching the stock market on a daily basis over the past month and a half, you might feel emotionally exhausted from the increased volatility, or big swings, in the market. To blame? A combination of several items, including disappointing economic data points (manufacturing and services data), uncertainty regarding trade tensions between the U.S. and China, and a resurgence of easing monetary policy around the globe.

Despite all the anxiety, the S&P 500 is less than 1% from its all-time high. And you might not believe it, but it’s also right about where it was a year ago.

As you may be able to empathize, investors are generally feeling pessimistic. According to the latest American Association of Individual Investors (AAII) survey, investors are more bearish (and less bullish) than historical trends. This survey has often been a contrarian indicator. In other words, when the AAII has been this bearish, it’s been a positive sign for the markets. The opposite is also true but to a lesser extent.

Combine this indicator with historical trends of the fourth quarter (typically the best performing time of year for the markets), and maybe investors should be more optimistic?

Earnings season is upon us

Starting Oct. 14, corporations began announcing third quarter earnings results and providing outlook updates for the remainder of the year.

According to S&P Capital IQ, the current consensus estimate is for the S&P 500 to report a decline of 4.2% in earnings growth during the third quarter. Yet, it’s more than likely this will be the consecutive third quarter that the expectation for profitability to shrink is incorrect and positive growth prevails. The S&P 500 has a long history — almost 11 years! — of beating consensus earnings estimates.

To be sure, there will be areas of weakness in the third quarter. Energy and materials will lead the downside in earnings growth as oil prices declined year-over-year and inflation remained lackluster. Technology is also expected to report a decline in earnings growth — something the markets haven’t experienced since the first quarter of 2016.

On the flip side, financials, health care, industrials, and communication services sectors are expected to report positive growth. One sector that could see surprising growth: consumer discretionary. Its current estimate is for about flat growth.

Why so upbeat on the consumer?

The resilience of the consumer has been the foundation of our economy. A tight labor market, solid wage growth, and a larger cash cushion (via savings) has boosted consumers’ confidence to spend. While some recent data points about consumers has shown signs of a pull-back from peaks (in hours worked and job openings), it’s likely those concerns will be tempered by the upcoming third-quarter earnings reports. For instance, homebuilder Lennar and athletic apparel maker Nike already reported upbeat earnings results for their most recent quarter. For Nike, the consumer was willing to pay full prices to get new products and shop online. And Lennar benefitted from lower mortgage rates, but management pointed to the underlying trends in employment as a positive.

Ultimately, the strength of the consumer and continued focus on streamlining costs will result in a solid earnings season for the majority of the consumer discretionary space.

Power of the consumer

While trade remains the largest wild card and risk to the economy and markets, continued strength from the consumer could help soften the impact of any trade-related slowdown in the economy. For example, in 2001 following the bursting of the tech bubble and the attacks of Sept. 11, businesses experienced a sharp contraction in spending (like we are seeing now), but consumption remained positive (though it did slow). The result: one of the mildest and short-lived recessions on record. Interest rate cuts by the Federal Reserve helped as well.

The point is that the power of the consumer should not be dismissed.

Stay invested.

It’s likely that volatility may persist over the coming months as trade headlines may cause the market to continue to swing up and down.  Nevertheless, if you have faith in the consumer and remain invested in a diversified way over the long-term, it may bode well for your financial future.

See how Ally Invest can help you start investing.

Lindsey Bell is Ally’s Chief Investment Strategist, responsible for shaping the company’s point of view on investing and the global markets. She is also President of Ally Invest Advisors, responsible for its robo advisory offerings. Lindsey has a broad background in finance, with experience on the buy-side and sell-side, in research and in investment banking and has held roles at JPMorgan, Deutsche Bank, Jefferies, and CFRA Research.

Lindsey holds a passion for teaching individuals how to become successful long-term investors. She frequently shares her knowledge as a guest on national news outlets such as CNBC, CNN, Fox Business News, and Bloomberg News. She also serves on the board of Better Investing, a non-profit organization focused on investment education.


The Ally Invest Market Outlook program provides comprehensive data and commentary on the markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions.

For the purposes of MiFID II, the Ally Invest Market Outlook program is an informational communication and is not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the Ally Invest Market Outlook program, as non-independent research, has not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Ally Invest or any of its subsidiaries to participate in any of the transactions mentioned herein. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Ally Invest is a trade name used by Ally Invest Group Inc. and its brokerage and advisory subsidiaries.

To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by Ally Invest in accordance with Ally’s Privacy Policy.