Major Indexes (2018 through December 31):
S&P 500 (with dividends) -4.5%
All Country World Index -Ex US -13.9%
US Aggregate Bond Index +.1%
Representative Result of index returns:
Blackrock Growth Allocation -5.83%
Blackrock Moderate Allocation -3.89%
Blackrock Conservative Allocation -3.08%
“Did you ever have the feeling that you wanted to go, but still had the feeling that you wanted to stay?” “Jimmy Durante, 1942”
This famous line is the feeling facing many investors after the last few months. December was historically bad for the stock market, but the Federal Reserve says that the economy is strong. While the global economy is talking about what a “NO Brexit” Europe would look like, and wondering how much is a Trade War with China is going to slow Global growth in 2019, as well as what is going on with my Apple stock, The S&P 500 was down just 4.56% for the year. Not pleasant for anyone, but this is the first down year for the stock market since 2008. So, we want to feel bad, but maybe this is the correction we needed to get rid of excesses and now is a great time to buy into stocks — or— maybe this is the beginning of the recession so many pundits are saying is just around the corner?
What we always need to be careful of is “FOMO” (Fear of Missing Out). Noted Investor Jeffrey Gundlach talked about “buying the dip”. He said “People were panicking in the later part of December. They were panicking, actually, but the flow data shows they were panicking into stocks, not out of stocks. People have been so programmed, and feel so frustrated by selling when we get dips, that this time they weren’t going to be fooled. This time, they were going to buy the dip. I worry about that, though, because it reminds me a little bit about how the credit crisis developed in 2007 and 2008.”
This isn’t to say that it’s time to head for the bunkers, as the US economy is strong, China and the US are talking about a trade resolution and company earnings reports have been strong. What we are saying is look at data and the world stage, not just “historical sayings”.
Buying the dip has become such a standard way of being for some time that it seemed almost inevitable that the late 2018 drop wouldn’t last. The wave of cash coming into ETFs, even as the market tumbled, says it all. What Jeffrey Gundlach is reminding us is that it hasn’t always turned out well for investors.
What we are saying at Yes Wealth is “capital preservation is important right now”, precisely because we “don’t know” how some global and home-based things will play out. A divided congress, an unsettled Europe, and a slowing Chinese economy are paired with a strong US economy and low unemployment. Leaders across the globe are all working to improve things, but it’s too early to predict results. We always like to remind clients that “Math Matters”, so remember being up 5% up then down 5% is better than being up 10% and then down 10%. Also remember neither Cable News nor your neighbor likely knew the market was too high last summer or that it was absolutely going up this January. Wilt Chamberlain has said about the game he scored 100 points “As I’ve traveled the world, I’ve probably had 10,000 people tell me that they saw my 100-point game at Madison Square Garden. Well, the game was in Hershey and there were about 4,000 [actually 4,124] there.”
We believe 2019 will end up giving us returns that are solidly positive. Not double digit returns as GDP both domestically and globally should slow some, but company earnings have been strong and people have money to spend with low unemployment and broad wage gains. Fixed Income (Bonds) investing will stay challenging as investors search for yields have increased risk in every category, but opportunities are showing up. It will likely be a volatile year as we will ride the wave with positive and negative earning reports, positive and negative global events, and the ups and downs of our own political landscape. But like the Federal Reserve, we will be “data dependent” watching for signs to increase or reduce risk, increase or reduce international holdings. And as always, remembering that capital preservation is important.