“Volatility is the product of uncertainty in the financial markets.”
Harry Williamson

Valued Client,

Today’s headlines may seem scary-so scary that "playing it safe" and not losing your money may seem like the only rational strategy. However, these headlines aren’t exactly "new" news. In the past few decades, we have seen repeating patterns of crises including unemployment, economic downturns, and national debt concerns. Yet, despite all these crises, the Dow Jones Industrial Average rose from 900 points in 1972 to more than 22,000 in 2018. In fact, long-term investors who stayed the course and did not lose sight of their financial goals typically have been rewarded.

Times of market volatility can often trigger emotional responses in investors, responses that can impact judgement and potentially affect long-term plans. Too often, investor emotion follows the ups and downs of the market. We’re exposed to an abundance of news, particularly economic news, via more outlets than ever before. 62% of Americans now get their news on social media. (Pew Research Center, 5/26/16) At times, it may feel overwhelming, as though we’re caught in a media whirlwind. This 24 hour news cycle provides an almost immediate record of what’s happening throughout the world. Everyone loves a good story—the more dramatic or sensational, the better it sells.

While market volatility is largely out of our hands, understanding why the market is pulling back is of an interest to us as investors. As we close out 2018 with a large push to the downside. According to Jeff Saut’s (Chief Investment Strategist at Raymond James) contacts, 150 or so hedge funds are being forced to close up shop. That’s a lot of forced selling that should be finished soon. That forced selling is causing technical levels to be breached, which in turn is causing additional forced selling. We believe this will pass as it is systemic, and at some point the buyers should show up to purchase equities.

The financial media is using the forced selling to create noise. The media is attributing the Wall Street weakness to slowing economic conditions in China, Europe, the U.S., and the Brexit Bombshell, Government shutdown, speculation of a Trump impeachment, China trade negotiations and the FED’s decision to raise rates as the reason for the decline. Wow, that’s a lot to worry about when economic activity and earnings continue to grow and do well. This will likely pass and they will find many other reasons why the economy is not going to perform over the next few years.

Don’t get me wrong, I am concerned about the current pullback in the markets and I would be more concerned if earnings stopped growing and GDP was moving negative in 2019, but the data we follow doesn’t show a large economic pullback in the works for 2019. This tells us the current pullback is a correction and not the start of a larger longer term decline in economic activity or the stock market. Did the media mention that we had a 20% decline in 2015 and 2011? Did they forget about those short term corrections? Did they forget the 13% pullback this past February to March?

The FED anticipates 3% GDP growth in 2018 and we anticipate 2.4% GDP in 2019. If the current economic expansion continues, it will be the longest on record. So, many investors ask, when is the recession? The likelihood of entering a recession, a period of declining economic activity lasting two quarters or more, does not depend on the length of the expansion. We are never "due" for a recession. There are few signs of a pending economic downturn on the immediate horizon, but economists have raised odds of a recession beginning in late 2019 or 2020-still not likely, but not out of the question. Scott Brown (Chief Economist at Raymond James).

4th quarter S&P 500 earnings growth is expected to reach 12.4%. If 12.4% is the actual growth rate for the quarter, it will mark the fifth straight quarter of double digit earnings growth for the index. As of today (December 21st), the estimated earnings growth rate for CY 2018 is 20.3%. If 20.3% is the final growth rate for the year, it will mark the highest annual earnings growth for the index since 2010 (39.6%). The estimated (year over year) revenue growth rate for CY 2018 is 8.9%. If 8.9% is the final growth rate for the year, it will mark the highest annual revenue growth for the index since 2011 (10.6%). These numbers are on top of the 11.4% earnings growth and 8.9% revenue growth in 2017. Analysts had originally projected 12% earnings growth for 2018. Those same analysts are expecting 7.9% earnings growth for 2019. (FACTSET)

We know that markets rise and fall. I get that declines can be unnerving, I really do. Yet over the long term, markets tend to rise much more than they fall. While stocks have fallen over the past few months, it’s a good time for me to once again remind you that a disciplined approach that avoids emotional decisions has historically been the shortest path to reaching one’s financial goals. Nevertheless, if you are concerned and want to talk, I’m simply a phone call away and would like to hear from you.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor. I’m here to assist you and to answer any questions you might have in regards to financial planning, the markets or walk through any issue that concerns you. As always, thank you for the relationship and trust.

Harry S. Williamson, WMS
Vice President, Investments
Financial Advisor

Any opinions are those of Harry Williamson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 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. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

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 an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.

Prior to making an investment decision, please consult with your financial advisor about your individual situation.