Dear Clients and Friends of Henry Wealth Management-
Since the March 9, 2009 market bottom, U.S. stocks, particularly large company stocks, have been on a historic bull run, outpacing all other major asset classes (with the exception of US REITs)1. However, 2018 has been a rocky one for financial markets, serving up a big burst of volatility early in the year, and then following on with new all-time highs in major market indices, only to finish up with another round of gut-wrenching plunges that pushed those same indices right back down.
The month of December thus far been has been a bruising one, with both the S&P 500 and the Dow Jones Industrial Average on track for their worst ends to the year since 19312. The MSCI’s broad measure of developed and emerging market stocks has fallen almost 6%, with the S&P 500, the benchmark for large companies in the US, down almost 8%3. Cash is up 1.7% so far in 2018, outperforming equities and bonds, a rarity observed only twice in the past 50 years (1994 and 1969). Investors have responded as they normally do by retreating from equities at historic levels over the past few weeks4.
Concerns driving investor sentiment include:
Wild stomach-churning price swings in the market can be uncomfortable for investors to experience. With slowing global growth, disparate rates of inflation, and continued policy normalization, periodic bouts of volatility in equity and fixed income markets are likely to persist and perhaps accelerate.
Guess what…this is how markets work! The downside risk is the price required for the upside potential. Markets go down, they go up, they go down again, and then they go up again.
It’s important for investors overall and especially our clients to stay focused on the long-term investment goals that prompted them to put capital to work in the markets to begin with, or else they risk making decisions based on the discomfort caused by short-term gyrations. Usually, when the urge to change is strongest, the benefit of the change is weakest! It's tough to outsmart the markets. In many cases, trying to time the market for exit and reentry simply results in selling low and buying high.
We simply cannot know in advance which markets will outperform over any period of time, but we see from the data that there are strong benefits to taking a path of broadly diversified exposures over time, and participate in the performance of all markets.
Amidst the ever-changing geopolitical landscape and a return of volatility to global markets, Henry Wealth Management believes that our clients are best served by taking a long-term approach to investing, and avoiding making investment decisions based solely on recent or short-term market movements. We refer to this as “staying the course,” even though it can become more difficult during periods of market volatility, history has shown us it is more often than not the most prudent course of action.
Please reply with questions, comments or concerns. We look forward to seeing many of you for Q1 review meetings.
Merry Christmas, Happy Holidays and Happy New year!
1Source: Morningstar Direct
2Matthews, Chris “Dow Falls Another 500 Points” MarketWatch 12/18/2018
3Hunter, Michael “Global Investors Make Record Shift Into Bonds” Financial Times 12/18/2018
4Mackenzie, Michael “Seeking a Glimmer of Light After the Darkness” Financial Times 12/17/2018