Dear Clients and Friends,
Statistically, at the beginning of the year, most people are in good spirits both because it’s the holiday season and markets average positive returns in the fourth quarter, however, this is year is a little different. Hopefully after you read this email, you will be able to feel a little better going into this weekend.
Below is a chart of the S&P 500 this year and the blue line indicates the trend down of ~17.5%.
These size corrections are fairly common over market cycles. If you go back to 2010, we went through a ~16% correction that lasted 70 days (a little over 2 months) only to be hit again the next year in 2011 with a ~19% correction that lasted 157 days (a little over 5 months). That wasn’t that long ago when you’ve been doing this as long as I have, especially after going through the Great Recession of 2008/2009 where the markets were down ~57%.
For most of you reading this, you have been through this with me and you know that I will tell you that this will not be the last time we will have to go through market volatility. That being said, let’s take a look below to keep things in context. The chart below shows the amount the market is up since the bottom of 2009 until today. You’ll see that even with this recent market volatility, the markets are up ~260% (not including dividends) since then. Again, reiterating keeping an eye on the big picture.
Now for more good news, the US economy is still very strong, and we don’t anticipate having a large deterioration in GDP in the near future that could put us into a recession. Most of this downturn was caused by a continuation of tariffs with China, but then we got another large shock down by a Fed rate hike on Wednesday, then yesterday the bill to keep the government from shutting down was pulled back last minute. The silver lining to all this is that these are not systemic problems and they can be fixed. If we can get a trade deal worked out with China and a bill signed to keep the government from shutting down, then that should bring some positive certainty into the market. As for the Fed Rate hike, I think this will be a positive in long term that unfortunately caused some temporary heartburn.
As always, please feel free to call/email me to speak in more detail and if you would like we can look at our risk modeling software to make sure you are in the right risk/return portfolio.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index