February 2019 Monthly Insight – The Year Ahead

Posted By T. Lee Sherbakoff, CPA/PFS, CFP® on Feb 1, 2019


“Come what may, all bad fortune is to be conquered by endurance.”

–Virgil, Roman poet, born 70 B.C.

We hope your 2019 is off to a rousing start. Whether you reached your personal goals in 2018, faced challenges, or are looking for a 2019 reboot, let’s take a moment to hit on the key themes for the rest of this year.

What’s in store for 2019

While 2018 began with unbridled optimism, caution quickly entered the picture, and most major U.S. indexes had their first downturn since 2008.  In 2019, we have the mirror image. There is no shortage of cautious sentiment. But the emotion that’s in the air today doesn’t always determine market direction throughout the year. As we’ve seen, markets are unpredictable, and it is extremely difficult to anticipate events that may have an impact on the economy and corporate profits.

We’ve always found it interesting that some analysts hope to discern trends from various calendar-like indicators.  We’ve just entered a new year, and typically the so-called January effect gets some play in that arena. Loosely defined, some say that how January performs sets the tone for the rest of the year.  Of course, if stocks perform well in January, the bulls already have a leg up on the bears. Throw in reinvested dividends and a natural upward bias in stocks, and it helps explain why a positive January usually results in a positive year.

But, that wasn’t the case for 2018. And by the same token, 2016’s weak start didn’t carry over into the rest of the year.  So, how will January 2019’s strong rebound of over 9 percent for the S&P 500 play out for the rest of the year?  Well, no one knows.

Let’s look at some other calendar-esque prophecies.  On average, the months of October, November, and December have been the top-performing months during any year that included a midterm election (1962-2014). In 2018, though, there was a failure to launch.

While there’s still time left on the calendar, history indicates that Year 2 Q4 (beginning in Oct 2018) through Year 3 Q2 (ending June 2019) is regularly the best three-quarter performance period of the 16-quarter cycle that begins just after a president has been elected or reelected. That’s using data on the performance of the Dow going back to 1896.  Well, we’ll see.

Finally, we could hang our hat on one other midterm indicator. That is, the S&P 500 has finished in positive territory in every post 12-month midterm period since 1950.  Like we say, we’ll see.

We say “we’ll see” because, while reviewing past election-year patterns to gain useful insights might make for interesting conversations, we must stress that it does not substitute for a well thought out plan that takes unexpected detours around market volatility into account.

Investor’s corner

We know stocks can be unpredictable (volatile) over a shorter period, and sell-offs are normal. And they aren’t pleasant. But we take precautions to minimize the effects of volatility and, more importantly, keep you on track toward your long-term financial goals.

LPL Research found that the S&P 500 has lost an average of 31% every five years since WWII; included are declines of 19%. Yet, the index has registered an annual advance 75% of the time and almost 80% of the time when dividends are reinvested.  Further, the S&P 500 has averaged an annual advance of nearly 10% since the late 1920s.  During up markets and down markets, we like to stress the importance of your investment plan and the progress we’re making toward your financial goals.  And, we never stress performance or out-performance.

Stocks will hit small bumps in the road and even the occasional major pothole, but the long-term data highlight that stocks have easily outperformed bonds, T-bills, CDs, and inflation.  As Warren Buffett opined a couple of years ago, “It’s been a terrible mistake to bet against America, and now is no time to start.”

As always, we’re honored and humbled you have given us the opportunity to serve as your financial advisor.

Please remember you are invited, and indeed encouraged, to raise with us any questions inspired by this very brief review. That’s what we’re here for.