A couple weeks ago we had a major milestone come and go without much fanfare or attention. In an article published by CNN Money on March 9th 2018 they claimed “The most devastating bear market since the Great Depression ended exactly nine years ago.” http://money.cnn.com/2018/03/09/investing/bull-market-stocks/index.html. It is important to look back and see how far we have come from those days, to realize that the 2008 financial crisis was not the end of the world, and even to understand that at some point in the future we will see market corrections, recessions, and bad headlines, but to remain steadfast in our approach, and for some to view these moments as opportunities.
In 2017 we saw relative low volatility and largely positive returns. In another article by CNN Money on December 29th, 2017 they explained “The S&P 500 and Nasdaq also had their best years since 2013. The broader S&P 500 zoomed 19%. And the Nasdaq jumped an impressive 28%.” http://money.cnn.com/2017/12/29/investing/stocks-2017-wall-street/index.html. Similarly Emerging Markets, and International markets also had large gains from 2017, both outperforming the S&Ps performance according to the MSCI Emerging Markets index, and MSCI Europe, Australia, and Far East index. When we remember 2017 one of the items that sticks out for me is that even with the above average gains of most equity markets it came with historically low volatility. The Vix index which is often cited as a fear gauge was below historical ranges, and according to Ryan Vlastelica at Market Watch on January 8th, 2018 “Of the 56 lowest closing levels in the history of the Cboe Volatility Index VIX, -4.93% (since 1990), 47 of them occurred in 2017. The so-called “fear index” also notched two all-time closing lows.” All of this occurred despite some of the geo political headlines that permeated through our news coverage. Signs that domestic growth was increasing, and global growth was syncing gave investors a positive outlook going into 2018.
Well that was 2017, what about this year? Will there be a 10 year anniversary of this unloved bull market when we look back in March 2019? As any person who has been in this industry will admit, no one has a crystal ball, and Warren Buffet eloquently stated about stock market pundits "The only value of stock forecasters is to make fortune-tellers look good." With that said there are a few key things to consider as we look out in 2018. Some key points from our LPL 2018 Outlook Presentation:
- Fiscal coordination. The next step for the U.S. economy will involve some combination of infrastructure spending, tax reform, and regulatory relief.
- Business investment. To remain successful at this point in the cycle, businesses will need to invest in property, plants, and equipment.
- Earnings growth. Better global growth, a pickup in business spending, and lower corporate taxes should all support better earnings.
- Active management. A return to fundamental investing—where investors can determine winners and losers based on earnings, sales, cash flow, etc. — should lead to continued momentum for active management in 2018.
- Bonds as risk diversifiers. Bonds should remain an important part of well-balanced, diversified portfolios and can help mitigate portfolio risk should we experience any equity market pullbacks.
Again we are not market timers, we believe in developing a strategy and sticking to it, while a market correction may come at some point I feel Peter Lynch, famed investor, says it best "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."