A normal market correction? Or is it something else? Will we resume recovery? Or retreat to recession?
All of us at W&A personally wish you a Happy New Year. But for the investment markets to have a happy 2019, more clarity will be needed around answers to these questions.
First, let’s look at some of the main problems that have been troubling the investment markets in 4Q18 and are still in the headlines as we enter 2019.
• Trade wars & tariffs – how best to resolve the negative impact on U.S. corporation profits?
• Interest rates – has the Federal Reserve been too aggressive with tightening?
• Global growth slowdown – the extent of the negative impact on multinational company sales abroad?
• What will be the impact of US corporate debt downgrades if a recession is imminent?
• Is the positive effect of US corporate earnings growth from tax cut stimulus behind us?
• Is the consumer slowdown in China a “canary in the mine” issuing early warning signs of weaker global economic data to come?
• U.S. stocks had the worst December since 1931 based on lower global growth expectations.
And now for the “glass half full” side, these are some of the bright spots as we enter 2019:
• Jobs – 99 months & counting for the U.S. longest stretch of steady hiring on record.
• Wages – competition for workers results in increased wages & the largest annual gain in a decade.
• Falling oil prices along with increased wages can boost consumer spending in the U.S.
• Federal Reserve’s recent message of flexibility on interest rates relieved financial markets.
• U. S. stocks are cheaper. Earnings are expected to increase by 7.9% in 2019.
• China announced additional economic stimulus & meetings on trade resume January 7.
• After SP500 quarterly declines of (10%+), the following quarter averages +5.13% & year +15.9%.
One known constant for sure is and will continue to be volatility, which is on our side as long-term investors. From 1980 thru 2018, despite average intra-year drops of (13.9%), annual returns for the SP500 were positive in 29 of 39 years.
Be leery of the market gurus in the headlines at the beginning of 2019 – positive & negative. The best preparation for a market downturn is diversification & holding enough cash to cover your withdrawal needs. Since 1926 bull markets average 9.1 years & +480% total return. Bear markets average 1.4 years & loss (-41%). The numbers can be in your favor to hang in there.
Performance information provided is for informational purposes only. Past performance is not a guarantee of future results, and investments carry the risk of loss, including the risk of loss of invested capital.