“U.S. Stocks Face Rocky Path in 2019”: This was the headline in the January 2, 2019 Wall Street Journal (page R12). We agree! The market euphoria witnessed in 2017 ran out of happiness in September 2018. The economic fundamentals are still intact, but what we believe is confidence in the market has been shaken (not stirred). Democrats have taken over control of Congress. This is the party that — when they controlled the Presidency, Senate and Congress – brought us fiscal stimulation funding by the government.
That hangover of spending gave us anemic (by historical standards) economic growth, and the 2016 election shifted who controlled the surplus created from our economy. The real beauty of our country is that anyone who has an idea can pursue their dreams. Efforts being made to reduce taxes on regulatory burdens create opportunities for more results. Positive results bring more surplus. They also create more jobs, which means lower unemployment. Those forces converged in 2017 and continued into most of 2018. Here are a few data points from page R2 of that same issue of the Wall Street Journal:
Cocoa Up 27.7% (top performer)
S&P Utilities Positive 0.46%
Dow Jones Negative 5.63%
S&P 500 Negative 6.24%
S&P Energy Negative 20.5%
Argentine Peso Negative 50.57%
117 data points are referred to in this article. Nearly 90% had negative returns – only 13 points had positive returns.
Remember, losses are only realized when you sell. These are simply 2018 calendar reference points. Will they come back? Yes. When is the open question. Using math as an example, if your equity portfolio was 100 at its high point and closed at 75 year-end, that would be a 25% decline. Getting back to 100 would require a 33% increase on the 75 (up 25/75 = 33%).
Focusing only on “returns” does not look at the whole picture. Where are you coming from? How close does this move you towards your desired goal? These are more important questions that should be answered, and having money in other places that is a) available and b) not subject to the wide swings one can have in equity markets is a more prudent approach.
Contributing factors are broad and include the trade wars between the US, China, Canada, and Mexico; problems in the Middle East, particularly Syria; the Brexit breakup and the UK’s slow progress in negotiating their departure from the European Union; and the expected turmoil between Congress and Trump, just to highlight a few. This may be especially true on spending and increasing the deficit.
So is everything bad? NO. In statistics we talk about returning to the norm. The last quarter of 2018 decline flattened the 200-day trading, moving the average for the Dow back into the 25,000 range. In January 2018, the 200-day average was around 22,000 with an upward bias. These events occur as part of a regular cycle.
That is why we recommend diversity: not only of assets, but also tax treatment and availability of funds. Money in the market should have a multi-year time horizon. Other, more short-term dependable allocations are available for tighter time horizons. If you want to revisit your asset strategy, just contact us or reply to this article. Thomas can put us together.
In case you missed it, we are moving on January 14th! Our new address will be:
4801 Woodway Drive, Suite 305 West
Houston, TX 77056
Our phone number remains the same (713.984.8044). We are looking forward to an exciting year filled with opportunities.
Securities and investment advisory services offered through World Equity Group, Inc. Member FINRA, SIPC, a Registered Investment Adviser. SMART Group Houston is not owned by or controlled by World Equity Group, Inc.
Neither SMART Group Houston nor World Equity Group, Inc. provide tax or legal advice.