“To be an investor, you must be a believer in a better tomorrow”
A recent Marketwatch headline stated, ominously: “The new stock-market fear: signs that a period of harmonious global growth is crumbling.” It is always the dramatic headlines from the financial media that grab your attention, whether some indicator is “crumbling” or the market is “crashing.” Ultimately, it makes sense that negative headlines jump from the pages because it leans on the emotional reaction that investors often have when it comes to their wealth. On TV, sex sells, and in the financial media, crashes get clicks.
Through the first four months of the year, the stock market had daily moves of more than 1% with far greater frequency than any of the last five calendar years. The contrast of volatility in 2018 compared to the lack of volatility in 2017 is stark. Trade wars, rising interest rates, and congressional inquiries into the technology sector have all contributed to more dramatic swings in the market.
Though it is easy to get caught up in the day to day headlines, it is important for investors to look past the daily volatility and keep a long-term focus for their portfolio. Data shows that over the last sixty years, the market has a positive return, in any given month, just 59% of the time. In other words, if you decided to buy the stock market and hold it for just one month, your odds of getting a positive return were slightly better than a coin flip. However, if you decided to buy the stock market and hold it for ten years, your odds of a positive return were 91%. Most people don’t believe that going to a roulette wheel and betting on red or black is a prudent strategy for building wealth. Yet the daily noise of the financial media, particularly when volatility is high, tempts an investor into taking a one-month view on their portfolio rather than a ten-year view.
One of the challenges to investing has always been balancing the loud noises generated by short-term events versus the quiet progress of the long-term. In this era of social media and a 24-hour news cycle the noise level can often be overwhelming for investors. Stock markets tend to be forward looking so the tepid response to strong earnings reports we are seeing now could indicate that the uninterrupted rise in equities last year already priced in good news this year. Perhaps the higher volatility and sideways trajectory of equities during the first 4 months of 2018 reflect a worry that growth may moderate over the next 12 months. While a recent survey of CFOs showed plans for capital expenditures at their highest level since the early 1980’s, the potential for tariffs, trade wars and rising interest rates to hinder global economic growth remains present. We do not see reason to believe that a recession is imminent, but it is important to note that economic slowdowns are unavoidable and there will be a time in the future to become more defensive with respect to portfolio positioning.
Investment advisory services offered through Independent Financial Partners, a Registered Investment Adviser
WhartonHill Investment Advisory is not owned or controlled by Independent Financial Partners
The opinions voiced in this material are for general information only and are not intended to provide specific investment advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
All data via Morningstar, Bloomberg, and the Wall Street Journal. S&P 500 index returns from January 1950 to April 2018