As we highlighted in our post “Anatomy of the U.S. Economy,” consumer spending accounts for nearly 70% of U.S. gross domestic product (GDP). Current consumer spending, as well as future spending, is highly influenced by consumer expectations for the economy.
The U.S. economy is on the verge of breaking the record for the longest stretch of economic expansion in U.S. history. Since the U.S. economy hit bottom in June 2009 following the Great Recession, it has been on a slow and steady recovery that has it on the brink of surpassing the expansion from March 1991 to March 2001 as the longest in U.S. history.
For the past 18 months, two hot button issues for investors have been the Fed and trade negotiations between the U.S. and China. These two issues were the catalysts for two market corrections in 2018, the latter of which nearly approached bear market territory. However, for the first five months of this year fears of a Fed misstep were alleviated and reported positive progress towards a trade deal between the U.S. and China spurred markets to new all-time highs.
On Friday, Uber went public in the what is the biggest initial public offering (IPO) so far this year. Earlier this month, Beyond Meat went public with less hype and saw its price skyrocket 163% in its first trading day, making it the best-performing first-day IPO in nearly two-decades. Beyond Meat is a producer of plant-based meat substitutes founded in 2009. The company’s Beyond Burger is sold at Whole Foods and restaurants chains around the country.
At HIGHLAND, one of the cornerstones of our investment approach is that securities offering higher expected returns share particular attributes, which we refer to as the dimensions of higher expected returns (or dimensions for short). These dimensions are based on economic theory, backed by Nobel Prize winning academic research, and supported by decades of real-world historical data. Dimensional Fund Advisors is an investment management firm with a long history of applying academic research to practical investing and is one of our preferred investment managers. Dimensional Fund Advisors defines a dimension as a return difference between two assets or portfolios “that is sensible, empirically robust in the data, and cost-effective to capture in well-diversified portfolios.”
When Tiger Woods won the 2019 Masters earlier this month, it capped off one of the greatest comebacks in golf history, if not one of the best comebacks in the history of all sports. Woods’s last Masters tournament victory came in 2005 and his last major tournament win was back in 2008. In this 11-year span between major wins, Woods faced a very public divorce, was arrested for driving under the influence, and battled a number of injuries. With his latest Masters win, Woods has 15 major tournament wins and is now three behind Jack Nicklaus for most of all time.
When the calendar turned from March 31st to April 1st, the U.S. economic expansion turned 117 months old. Should the expansion continue through July, it would become the longest economic expansion in U.S. history. Given that the U.S. economic expansion is starting to show signs of its age, many have been questioning how much longer until the next recession.
Nobody likes paying taxes. Even though taxes are necessary to keep our schools open, communities safe, roads clean, and governments running, it’s not a fulfilling experience to see a percentage of your hard-earned income or investment gains vanish into thin air. With that being said, there’s no way of escaping taxes (without risking legal repercussions, of course), but that doesn’t mean there aren’t things we can do throughout the year to reduce the amount of taxes you ultimately end up paying.
Author Nancy Hatch Woodward once wrote, “Snow brings a special quality with it – the power to stop life as you know it dead in its tracks.” Anyone who lives in the Northeast knows this all too well.
On Thursday, November 15, 2018, the New Jersey/New York area was hit with one of the more notable November snowstorms in history. Parts of Northern New Jersey and New York City received upward of six inches of snow, with some areas getting hit with as much as ten inches.
In closing 2018, the S&P 500 posted its worst December since 1931, during the Great Depression, and its worst quarter since 2008, during the Great Recession. The good news is we didn’t have to wait long for the bounce back. To start 2019, the S&P 500 posted its best January since 1987. As of Friday’s market close, the S&P 500 is 5.0% below its high on September 21, 2018, but is 19.0% above its low on December 26, 2018.
Over the past few weeks most of our posts have focused on putting the recent stock market volatility in perspective and subduing concerns about the strength of the U.S. economy.
One of the important points we have stressed is the importance of remaining disciplined to your investment strategy because capital markets have rewarded long-term investors. One of the graphics we often show to illustrate this point is the chart included below. This chart shows the growth of $1 from January 1, 1926 through December 31, 2018 had you invested in US small cap stocks, US large cap stocks, long term corporate bonds, long term government bonds, and cash.
The National Football League (NFL) season reached its conclusion yesterday when the New England Patriots defeated the Los Angeles Rams 13-3 at Mercedes-Benz Stadium in Atlanta, Georgia to win the Super Bowl. While New England Patriots Fans are busy celebrating their sixth Super Bowl win in the past eighteen years and Los Angeles Rams fans are licking their wounds, some investors are looking to the final score to get a sense of how the stock market is likely to perform for the rest of the year.
Over the past few months, market participants have focused on the yield curve and its history of predicting an economic recession. As the chart below shows, the yield curve has inverted prior to every recession dating back to 1962. With predictive power like this, it’s no wonder investors have been vigilantly monitoring its movement in an attempt to gauge when a recession may occur.
What a difference a year makes. This time last year we were highlighting a picture-perfect year for global stocks. In 2017, both the S&P 500 and the MSCI All Country World Index ex USA were positive for all twelve calendar months. This was the first time either index accomplished this feat and it happened with near-record low volatility while enduring geopolitical tensions, political dysfunction, massive natural disasters, and tighter monetary policy. 2017 was defined by synchronized global expansion whereby most global economies were getting stronger, with the United States leading the charge.
From its close on September 20th to its close on December 24th, the S&P 500 Index declined 19.8%, including a greater than 7% one-week (December 14-21) fall that had not been seen since the Global Financial Crisis of 2008-09. The generally accepted technical definition of a bear market is a decline of 20% or more. While the S&P 500 barely avoided the official bear market designation, it sure felt like one.
In the 1950s psychologist Solomon Asch conducted a series of experiments to investigate the extent to which social pressure from a majority group could affect a person to conform. Asch’s experiments were simple vision tests. A group of eight male college students were placed in a room, shown a card with a line segment on it, and then shown another card with three line segments labelled A, B, and C. One of the line segments on the second card was the same length as the line segment on the first card, while the other two line segments were clearly of a different length. Participants were asked to write down their answers and then give their answers aloud. Seems like a pretty straight forward experiment, but there was a twist.
Over the past 80 days, the US stock market has declined about 11%, and over the last 365 days, it is down about 1%. Foreign stock markets have declined about 9% over the last 80 days and are down about 10% for the last 365 days as well. The US bond market, typically a good hedge to the risk of stocks, hasn’t delivered much protection during the same time periods, being up about 1% in the last 80 days and down about 1% for the last 365 days.