Watching ice-hockey is very different from watching baseball. One can eat and have a relaxing talk with a friend while watching a baseball game. However, if you turn your head for 30 seconds, you may miss a lot in a hockey game. NHL players typically only stay in the game for one-minute intervals…anything longer and the player is out of gas.
Sometimes a game goes three periods without any score. Sometimes there are multiple scores in the first period. Rarely is there is an equal amount of scoring each period. Some players have a much higher probability of scoring than others. One thing remains constant: you never know what will happen or when it will happen. And so it is with the stock market. If you miss one moment, your portfolio may miss out on a lot of action. The odds of “getting in” and “getting out” at the right time are low. And in any “period” you want to be invested in the right “players” who have the highest probability to succeed.
Recent Heights
After new all-time highs, some speak of the stock market as if it were as overvalued as the supposed $120,000 banana that was eaten off the wall of the Art Basel Museum in Miami. However, as our Chief Investment Officer, Larry Adam, reminds us…records are meant to be broken.1
The Washington Monument was the tallest building in the world at ~555 feet when it was built but has since been eclipsed by buildings more than four times its height. The stock market has made new highs 25 times this year alone.1 So, we believe all-time highs are bullish…not bearish.
In terms of baseball, we think this bull market is probably at the bottom of the fourth or top of the fifth inning. Late cycle? We think not. The bullish technical structure of Financials, Technology, and Energy doesn’t even appear to have reached mid-cycle. We do not believe this bull market will end until the Fed sees fit to meaningfully tighten…and they are not likely do so unless the economy overheats, inflation rises and speculation increases.9 The Fed Chairman said he would like to “smooth out the wild swings in the economic cycles by fine-tuning monetary policy.” If his policy is maintained, we believe this bull market can continue for many decades.9
Positive Seasonality
Over the last eighty years December has been positive 76% of the time.1 Clearly last December was not one of those times, but we believe December 2019 will set the stage for the next twelve months of historically “positive seasonality.”
We have often stated the historical strength of the market in election years. Statistically, in the twelve months leading up to the presidential election, the S&P 500 has been positive 86% of the time posting average annual returns of 9.0%.4
Also keep in mind, President Trump ran on the economy in 2016 and his reelection hopes likely hinge on people’s view of the economy. So, he will be on a perpetual promotion campaign for the stock market in 2020 which should also help investors.2
Strong Economy
In addition to positive seasonality, earnings also continue to be strong. Seventy-five percent of companies have reported better than expected earnings and 60% have reported better than expected sales.3 Most analysts are projecting high single digit or low double digit earnings growth next year, and we could also see some price / earnings multiple expansion as well if growth continues and interest rates remain low.
Third quarter GDP registered +2.1% versus the +1.9% estimate. Consumer spending was +2.9%. Jobless claims declined to 213,000. Retail sales were up 19%. Interest rates are low. These kind of numbers do not typically forecast a recession.5
Recession
Speaking of recession…what if we were to go into a recession? Our friends at Fidelity point out that stocks actually made money in five out of the last ten recessions.6 So, even if those predicting recession are right, that doesn’t necessarily mean the stock market will decline.
DOW Dividends
Our bullish sentiment applies especially to the DOW, due to the large number of its dividend-paying stocks that have raised their dividends in the past couple years.7 The DOW 30 currently yields 2.73%, while the 10-year Treasury bond yields approximately 1.81%.7 Considering these stocks not only yield more than
bonds, but are also taxed at a more favorable rate, we expect investors to continue to take advantage of this opportunity.7
We wish you and your family a very Merry Christmas and a Happy and prosperous New Year!
Retirement Tip #2
Charitable giving can be one of the most satisfying aspects of a financial plan. Not only is it a way to support causes you are passionate about, but you will also benefit from paying lower taxes. If you would like to make sure your chosen charity / ministry will do what it says with your donations, you can check the following website:
Guidestar.org contains records from 2.7 million nonprofits registered with the IRS, with access to each organization’s Form 990, a document that details nonprofits’ income, spending, mission and executive salaries.8
