“It belongs to the imperfection of everything human that man can only attain his desire by passing through its opposite.”
—Soren Kierkegaard, Danish philosopher, theologian, and poet
Bright start to the new year
First, let’s take a look back at December. A headline in TheStreet.com summed it up well: “Dow Gains on Last Day of Worst December Since the Depression.” Even a 7% bounce in the final week of the last year didn’t prevent a performance that was compared to the early 1930s. When the S&P 500 Index touched its bottom on December 24, the broad-based index of 500 large U.S. companies had shed 19.8% from its September peak. We were barely 0.2 percentage points from officially entering a bear market.
Market turmoil in the fall and December’s action were especially ugly. Steep market corrections are not something we look forward to. They are impossible to consistently predict, but they come with the territory. As we’ve repeatedly said, your investment plan incorporates the unexpected detours. The disciplined investor, who divorces the emotional component from the investment plan, chooses the best path to meet his or her long-term financial goals.
That said, 2019 has been much better. As a matter of fact, the S&P 500’s rebound in the first quarter of this year regained almost all of the ground lost in the previous three months. It was the best quarterly performance since the second quarter of 2009, and the biggest gain in a first quarter since 1998.
A flexible Federal Reserve has taken its finger off the rate-hike button. Following its last meeting in March, the Federal Open Market Committee did not increase the federal funds target rate. The Committee’s report was accommodating, noting that economic growth appeared to be slowing, as were business and consumer spending. No more rate increases are projected for the year, although that could change. The FOMC does not meet again until the end of April, with its report scheduled to be issued on May 1.
The economy continues to expand, although the pace has slowed. The third and final estimate of the fourth-quarter gross domestic product showed the economy grew at an annualized rate of 2.2. For 2018, the GDP advanced at a rate of 2.9%.
We’ve been treated to headlines saying the U.S. and China are making progress toward a trade agreement. Both countries could lift some tariffs imposed last year, and Beijing would agree to ease restrictions on American products. A trade deal that pries open Chinese markets to U.S. products and services, protects U.S. intellectual property rights, and ends forced technology transfers (and one with strong enforcement provisions) would not only benefit the U.S. economy, but a deal between the world’s largest economies would sweep away one cloud of uncertainty that has plagued investors.
10 years gone
On March 9, 2009, the Dow Jones Industrial Average closed at 6,547. It marked the bottom of the last bear market. On March 29, 2019, the Dow finished the day at 25,929, less than 1,000 points or 3.05% from its prior closing peak of 26,744 last September. How much life is left in the bull? We are in the latter stages of the cycle, but much will depend on the economic fundamentals going forward. With the Fed on hold, inflation contained, and the economy moving forward, the fundamentals are currently sound. But never discount volatility. Stocks seem to take the stairs up and the elevator down.
In the spirit of the celebrating the last 10 years, let’s look at a partial list of the worries and crises du jour, that temporarily sidelined the bull, but didn’t sideline those with a long-term view:
The European debt crisis…Greece…global growth worries…U.S. growth is slowing…China is slowing…the dollar is too strong…Japan earthquake/tsunami/nuclear disaster…U.S. debt downgrade…fiscal cliff…Obama will be re-elected…Trump will get elected…Hillary will get elected…the Fed will end bond buys…Fed will start hiking interest rates…falling oil prices…Ebola scare…Russia invades Ukraine…North Korea…ISIS…Syria…Brexit…trade tensions…acrimony in D.C.…and stocks have risen too quickly…
Shorter-term risks never completely abate. But Warren Buffett’s message has been consistent. Don’t bet against America. Let us emphasize again that it is our job to assist you! If you have any questions or would like to discuss any matters, please feel free to give us a call.