Client email sent out at 9:30 today: Markets don't know the day or the end of the year!
Unless you have a major anniversary on New Year's Eve (like I do!) I suspect most of you don't think of New Year's Eve as much of a milestone. Most of us don't shut down our brains on December 31st to pack up all the old year's events to "reboot" in the new year: our lives just don't work in "calendar-year."
Markets report earnings on a calender-by-calender-year basis: humans just don't think that way! December ends, and we begin looking forward to Spring. We take many of the events from last year into the next year and build for the future.
2018 saw all markets nose-dive in December as the economy threatened to over-heat and force the Fed to have to aggressively raise interest rates. Fed Chief Powell had increased the Fed Fund rate 3 times to a modest 2% in 2018 and it was a welcome action for those of us with money sitting in cash. The Dow took what was turning out to be a nice year and dropped 18%, ending at -4%.
January 2019 was a different story: in the first Fed meeting Jerome Powell cut rates by .25% and that sent stock markets up...recovering most of what was lost by the end of the 1st Quarter of 2019. Few investors had aggressively jumped in to snatch up the bargains in January because we didn't shut down 2018 as over and gone.
We didn't start 2019 as a new year full of hope and opportunity: the "9th Inning Investing" strategies I speak so much about was intact. The drag of tariffs...the slowing economy (measured by every metric) and declining corporate earnings persisted: make no mistake...these don't turn on a dime. It takes multiple quarters for things to really shift, in the economy.
So... the 30% gain in 2019 returned what it took out of portfolios in 2018. Most clients wondered why their September 2019 Performance Report: September 2018-2019 showed virtually NO CHANGE!!!! I risked sounding defensive when to explain this, I showed charts of the last 12 months: there was no change. It was frustrating to hear the market was moving to an all-time high and clients seemed to be treading water.
The market just doesn't pay attention to quarter-by-quarter or even year-by-year data: economic cycles are much longer and can last 10 years, as this one has lasted. I had a strategy and I worked that strategy with a focus on protecting portfolios from the losses that come from an end of an economic cycle.
CNBC has a nice recap for 2019...watch it here for more details:
Today I'm working on whether some of your cash should be invested following the killing of Iran's top general...and the worry that every recession we've had over the last 75 years happened after oil surged...as it is right this moment.
When there is a event like Y2K in 2000; the bombing of the twin towers on 911...one of my most important jobs is to determine if an event is a "market event" or an "economic event." Market events are often buying opportunities while economic events are a line in the sand...where the numbers...the economy...stocks...change directions.
2020 is going to be a very busy year so trust you'll hear from me often. Today, I send you best wishes for the brightest of new years!