On the morning of January 4, I was riveted to my computer screen. High drama was playing out in the wealth management world. A three-way roundtable had been convened to include the current Federal Reserve (FED) Chairman and the past two Chairpersons.
The timing was the day after U.S. stocks posted -2.5% (1), following the sizeable downdraft of year-end 2018. The goal was to address world-wide investor concerns. During the roundtable, the current Chairman, Jay Powell, shared that the FED will be patient in terms of interest rate increases; that it will remain independent of U.S. politics; and that the U.S. economy is reasonably strong. Janet Yellen and Ben Bernanke affirmed Mr. Powell’s comments. As a group, they hit the right notes.
That very day, influenced by the roundtable and other factors, U.S. stocks posted +3.4% (1). And, stocks have not yet stopped, having retraced (as of Jan 11) approximately 40% of the downturn that began Sep 20, 2018 (2). That 40% retracement occurred despite political questions including a federal government shut down and continuing trade uncertainty with China and the EU.
This retracement could be a “technical bounce,” after which stocks struggle. Alternatively, with some air having come out of the overfull U.S. stock “tire,” we may benefit from average positive results – that are highly likely to come with volatility – over the coming months and even 2-3 years.
Our outlook leans more toward the latter scenario because we are not yet seeing the financial excesses that normally accompany a recession. And, downturns that are not accompanied by a recession tend to be milder. Of course, as we all know, definitively predicting market performance is challenging because surprises are common.
As an example, the early part of the Tech Bust of 2000-2002 was not highly painful until the surprise of 9/11 occurred, and then “all heck broke loose.” I’ll never forget that week. Of course, positive surprises can occur as well.
To help cover the possibilities, in serving you we focus on both defense and offense: defense through less volatile investments to help protect you, and offense through “buy low” and other strategies to help provide you growth. As always, please call us for details.
Our profession does not often offer “high drama.” But, we are grateful that it does offer the fulfillment of helping you steward your monies and focus on your goals.
As always, please let us know your comments and questions.
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(1) All stock measures in this article are results as measured by the S&P 500; this data from are from Valueline.com.
(2) All stock measures in this article are results as measured by the S&P 500. This data from Yahoo.com.
S&P 500: Representing approximately 80% of the investable U.S. equity market, the S&P 500 measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested.
This information is not intended as a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended for a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for every investor. Investing involves risk and investors may incur a profit or a loss, including the loss of all principal.