The market has been doing nothing. Nothing for a year-and-a-half.
I enclose a screenshot, below, I took this morning with equity futures down a little bit. If you carefully study the chart below, you will see the right-end of the chart line – that’s the S&P 500 yesterday. On the left, faintly seen under the little range chart, is where that same line was at the beginning of last year: it’s just about as high as it was yesterday. In the middle, you see the market lurching upward and downward, putting in a new high for a day or so, and then falling. Sometimes, sharply, like last December and sort-a like last month, too.
I could say the same about this market. Sometimes, and sometimes for long times, the market just sits. It goes nowhere. It’s dangerous to give up on it, but it tempts you to.
I caution you, dear friends: no one ever gets the market right all the time or for long. Like a great baseball player hitting 300, that player will wind up in the Hall of Fame. But investors have to do better than 300 – not bat a thousand – but just better.
While 2017 was a gangbuster year for the market, following Trump’s election in 2016 – and gains needed to be consolidated – 2018 and 2019 have been mired in puzzles within riddles that, for now, don’t have an answers: China, tariffs, possible trade wars, immigration, Mueller, Putin, No. Korea, Iran, socialism. Even while employment is good, regulation is less harmful, economic growth has improved, and more, there’s a lot for markets and investors to digest. Plus, Trump does not make it easy and the next Presidential election is just over the horizon. Markets worry what will happen: will America throw all the economic improvements away to explore the wonders of socialism?
Corporate earnings have plateaued for now. It will take more to keep them rising. They fell a bit last quarter, and they are likely to do so again this quarter. By year-end, and for the whole year, they should, however, rise 5-7%, about normal for corporate earnings in a healthy economy. The nation’s economy surprised many by growing over 3% in the first quarter. It won’t do that in the second, in my opinion; probably growing at only 2%. But the first quarter may soon get revised up a little bit.
But it’s very hard for investors to hang on. It takes discipline and faith. Emotions are an investor’s worst enemy. I am surprised to no end, looking at fund flows, as I do, seeing what I see. These flows track investor movements into and out of stocks and bonds. To my continuing amazement, far, far more money is going into bonds these days, and far more is coming out of stocks. Gold is also at a multiyear high right now. Fear reigns. Frankly, most of the time it does. But in much of the developed world, people are piling into bonds when yields are negative; that is, a ten-year, say, German bond is paying NEGATIVE .3% per year. Understand, my friends, that means that an investor in those things get LESS than their original investment when they pay out ten years hence. This is what fear looks like – to me, a lot like stupidity. And, right now, Portuguese ten-year bonds are seen as less risky (What?!) than American bonds. But American ten-year Treasury bonds are only paying about 2% a year.
I hardly think 2% is adequate compensation for parting with my money for a decade. These are crazy times we live in, when a sizable portion of Americans, especially under 40, say we’d be better off trying socialism.
For me, I’m going to stay the course with my broadly-diversified, equity-oriented, low-cost mutual fund and ETF portfolio. I’d recommend you do the same, though I don’t know the future for sure. Nor I don’t see a recession in the next twelve months. However, if one hits, socialism is more likely in our future.
Keep the faith and blessings to you all.