It’s hard to believe 2019 is here already. Our team (Malcolm, Catherine, and Carrie) are pictured here after their recent hike up Mount Everest :) This past year has been a year of highs…and lows in more ways than one.
Malcolm has been playing golf since he was six years old. His goal of breaking 80 had never been
met until this past year when he shot his lowest round ever…a 76 in a tournament at Dalton Country Club. The only problem was a storm rolled in and prevented them from playing the last two holes. :) His highest round of the year will remain confidential.
The stock market experienced a “high” on September 26th, and then promptly became afraid of heights. However, we believe this correction to be a pullback within a long-term bull market.
While I’ve never claimed to be able to time the market, we do believe there is potential for a surprise on the upside going into 2019. A strong economy, low unemployment, lower taxes and attractive stock valuations could usher in a positive first half for U.S. stocks in 2019.2 Stock valuations are the most attractive they have been in quite some time. The forward price to earnings ratio for global stocks is at a five-year low.6
China’s President Xi would likely tell us his “low” for the year was higher tariffs. The market started its recent consolidation when President Trump threatened to levy 25% tariffs on everything coming into the U.S.
However, the market celebrated the agreement between President Trump and President Xi to “halt” tariff escalation and continue dialogue within a 90-day time frame. While both sides came away with short-term victories and an agreement to pause escalation, there are many issues yet to resolve.3
In the midst of all these “highs” and “lows”, as always, our strategy is to stay fully invested and “stay the course.” The picture below is the theme of our website (www.TarverAMG.com), reminding us of how the farmer is rewarded for his patience and “steady plodding.” Some of the interesting facts for this belief are:
The yield curve is at a point that has historically been a “buy point” for stocks.5 You have likely heard the “Inverted Yield Curve” mentioned as a very bearish development. However, we believe the real yield curve spread to watch is between the 2 year Treasury note and the 10 year Treasury bond. As you can see from the chart below, when that yield curve inverts as it has in the past, an average increase of 22% on the S&P 500 has followed. There has also typically been nearly two years between when that yield curve inverts and when a recession actually begins. So in reality, the yield curve is actually at a point that has historically been a “buy point” for stocks.5
As historical data shows, it is typical for the market to experience at least one or two significant corrections per year. In spite of this, the average annual return is still well within positive territory.4
Since 1945 (Post World War II era), there have been eighteen midterm elections in the U.S. As indicated in the chart below, the S&P 500 Index posted a positive total return in each of the calendar years following the previous eighteen midterm elections. The average gain was 19.13%.4
All of these facts can be hard to believe in light of the major correction we have recently experienced and the fearful doom and gloom we read and hear daily from the media…but that is just what they are: historical facts. I’ve heard it said that 85% of all the things we fear never come to pass.1
Detective Joe Friday used to say, “Just the facts, ma’am, just the facts”…but that was a long time ago. Earnings are a fact and that is what typically projects stock prices in the long run.
So, in light of the facts above, we believe there are more “highs” than “lows” ahead. We wish you and your family a happy, healthy and prosperous New Year!
Tarver Asset Management Group
Malcolm C. Tarver, III
Senior Vice President, Investments
Certified Investment Management Analyst ®
Malcolm.Tarver@RaymondJames.com
1HuffPost.com, 85 Percent of What We Worry About Never Happens, August 25, 2015
2Investment Strategy, Jeff Saut, November 6, 2018
3Washington Policy, Ed Mills, December 3, 2018
4First Trust, How Stocks Have Fared After Mid-Term Elections, October 4, 2018
5Investment Strategy, Jeff Saut, December 10, 2018
6Morning Tack, Jeff Saut, December 13, 2018
Past performance does not guarantee future results and there is no assurance that the objectives will be met. Investing involves risk and you may incur a profit or a loss. The information and opinions provided have been obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. Expressions of opinion may not necessarily be those of Raymond James & Associates and are as of this date and are subject to change without notice. The opinions expressed are provided solely for informational purposes and not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Long-term investing does not insure a profitable outcome. Investment Management Consultants Association (IMCA®) is the owner of the certification marks “CIMA®,” and “Certified Investment Management Analyst®.” Use of CIMA® or Certified Investment Management Analyst® signifies that the user has successfully completed IMCA’s initial and ongoing credentialing requirements for investment management consultants. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. The companies engaged in the communications and technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.
