DOW Plunges by More Than 500 Points!Submitted by National Wealth Management Group on January 3rd, 2019
While you may think I am referring to a recent market event, this is what the headlines read during the market selloff of Summer of 2011. The correction in the S&P 500 eventually exceeded 19% with international and small-cap indexes breaching bear market territory[i]. The sensationalized financial news story of the time was the so called “Sovereign Debt Crisis”. Outsized debt obligations held by Greece, Italy and other European nations were on the verge of systemically taking down the entire financial system once again, or at least we were led to believe. I remember this well because a local radio station was broadcasting its regular financial news segment at 6 PM espousing the same bearish sentiment. So, while I was sitting in a LaRosas parking lot waiting for my family’s pizza order, I called in and spoke to the gentlemen on the airwaves and declared that I am aggressively investing in this market. Why? Because this is what a prudent investor does! My declaration was met with pessimism at the time, but who did history prove right?
A recent study conducted Hans Rosling’s web project Gapminder as reported by the CATO Institute found that an overwhelming 95% of Americans incorrectly provided the answer to the following question: Over the last two decades, the proportion of the world’s population living in extreme poverty has a) almost doubled, b) stayed the same, or c) almost halved.
How could it be that so many of us answered this simple question incorrectly? It’s because we can be naturally predisposed to view events in the world negatively. This truth is manifest in the recent stock market volatility. Fear has taken hold of the average investor, shaking them to their core and calling into question all they have been taught by their financial advisors. Fear that this bull market may die of old age, fear that the so called “trade war” may decimate global GDP growth, fear that the Fed may raise interest rates too high, and fear of political unrest. In a world of uncertainty, it seems that the only thing we’re certain about is that we should all be scared. Many of us have heard the sage advice from Warren Buffet, “Be fearful with others are greedy but be greedy when others are fearful”. Why is this time any different? The simple answer is that it’s not.
As of the time of this writing, I have read analyst reports and 2019 market outlook publications from no less than ten well known financial institutions. None have predicted a recession next year and most have declared the stock market as being oversold. Just as in America’s pessimistic view of global poverty, we are viewing the current state of the global economy through a pessimistic lens. Here are seven facts you will not hear through ad-revenue driven news outlets:
1) Unemployment is at a 50-year low and is projected to go lower in 2019[ii]
2) Wages are rising[iii]
3) Global GDP growth is positive and is projected by the IMF to be 3.07% in 2019[iv]
A recession is defined as two consecutive quarters of negative GDP growth
4) Valuations have not been this attractive since 2013[v]
5) The Fed’s trajectory is reasonable and reflects a strong economy[vi]
6) Corporate earnings growth is solid and forecasted to grow by another 7 – 9% in 2019[vii]
7) Trade agreements will more likely than not be reached by mid-half of next year[viii]
It’s easy to get caught up in all the hysteria and lose sight of your long-term goals and the sensible investment behavior required to meet them. After all, investing is the endeavor of an optimist and who can be optimistic when everything we read and watch seems to motivate us otherwise! The important thing to remember during these dismal periods is the reason why we invest in the first place. We are investing in the future, and in turn, your future. In the past, we enjoyed corporate success, innovation, a decline in poverty, and a successful pursuit of human progress. To plan for a future without these things would contradict history and place us in a hopeless and unrealistic position.
If the current trajectory of the US stock market continues, we could see the first bear market in the S&P 500 since 2008. Many foreign equities markets have already reached bear market territory. Losses have been especially pronounced for investors that have dollar-cost-averaged throughout the year, buying into the market at relative high points. We remain confident in fundamentals and see compelling investment opportunities for growth-oriented investors. I encourage you to remain resolute in your long-term financial objectives by maintaining your investment discipline. I am available at your convenience to meet to discuss your financial plan, current market conditions and our outlook on the economy. Simply click the “Schedule Appointment” above to coordinate a time to do so. As always, thank you for your trust and your business and Happy New Year!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
[i] Source: Standard & Poors, JPMorgan Asset Management, 08/27/2011
[ii] Souce: BLS, FactSet, J.P.Morgan Asset Managments, Guide to the Markets – U.S. Data are as of 10/31/2018
[iii] Souce: BLS, FactSet, J.P.Morgan Asset Managments, Guide to the Markets – U.S. Data are as of 10/31/2018
[iv] Source: IMF/Haver Analytics, T. Rowe Price
[v] Sources: FactSet Research Systems, MSCI, and T. Rowe Price.
U.S. = MSCI USA Index, Europe = MSCI Developed Europe Index, Emerging Markets (EM) = MSCI Emerging Markets Index, Japan = MSCI Japan Index.
[vi] Source: LPL Research Outlook 2019
[vii] Sources: J.P. Morgan Asset Management Guide to the Markets as of 11/30/2018, LPL Research Outlook 2019
[viii] Source: T. Rowe Price Global Market Outlook 2019 published December 2019