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.
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.
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.
After a long stretch of relatively calm and steady stock market gains, volatility has reared its ugly head over the past four weeks. Last week we detailed how interest rates have contributed to the recent stock market slump. While interest rates may be the driving force behind the quick and dramatic drop in stock prices, there are other factors at play. Trade tensions between the U.S. and its global trade partners are running high. There is uncertainty around the upcoming midterm elections. There is nervousness as companies are beginning to announce third quarter earnings. Housing sales are starting to slow. Geopolitical pressures are mounting in light of the murder of Jamal Khashoggi in Saudi Arabia. All of these issues have played a role in the recent market volatility that has seen the S&P 500 decline in 15 of the 19 trading days in October.
Last Wednesday, October 10th, U.S. stocks suffered their worst losses in eight months. The Dow Jones Industrial Average declined 3.2% and the S&P 500 declined 3.3%, both notching their worst losses since February 8th. The S&P 500 also posted its first six-day losing streak since November 2016, although a bounce back on Friday stopped that slide.
On September 21, 2018, the Global Industry Classification Standard (GICS) sector structure will experience the biggest change in its history. Specifically, the Telecommunication Services sector will be broadened to include companies from the Consumer Discretionary and Information Technology sectors and renamed Communication Services.
When the closing bell rang on Wednesday, August 22, 2018, many media outlets were quick to celebrate the longest bull market in United States history. However, there are many investment professionals and historians who beg to disagree with this notion. You’re probably asking yourself how can there be a disagreement on whether this bull market is the longest ever? It either is or isn’t. It’s black or white. Day or night. Unfortunately, it’s not that simple.
General Electric has long been one of the most prestigious companies in the United States. In fact, General Electric is the only one of the original twelve members of the Dow Jones Industrial Average created in 1896 by Charles Dow still around today. This speaks to the company’s ability to innovate and adapt.
Since the start of the U.S. stock bull market following the Great Recession in 2009, consumer discretionary and technology have been the best performing sectors of the S&P 500. In the first half of 2018, that trend continued. It is not uncommon for market sectors to experience long periods of strong performance, but what has some in the financial media buzzing is that the same handful of technology companies continue to be among the best performers.
China is one of the fastest growing economies in the world and is home to some of the best-in-class businesses, particularly in the technology industry. However, most investors domiciled outside of China have had limited access to these Chinese companies. China’s capital markets are not fully open to foreign investors because the Chinese government does not allow the free flow of capital into or out of mainland China.
Sector investment strategies have been around for decades and the proliferation of exchange-traded funds, or ETFs, have made these investment strategies available to the masses at a relatively low cost. The problem with sector investment strategies is that while businesses change with technological advancements, the traditional sector classification system has remained unchanged.
I am not a fan of basketball, but one story this year caught my attention. The Philadelphia 76ers, who were far and away the worst team in the National Basketball Association over the past few seasons, surprised many fans and basketball insiders alike when they won 52 games en route to the number 3 seed in the Eastern Conference playoffs. For the 76ers players and fans, the mantra “trust the process” served as a rallying cry for the team throughout the season and into the playoffs.
The financial media loves to write articles about how much money you would have if you invested $1,000 in a particular stock on a particular date. Often times the authors of these articles will reference the best performing stock of the year and trace the history back to the stock's initial public offering, or IPO.