This year has been challenging from the standpoint of the markets. I had been expecting to see more inflation and higher interest rates early in the year, and now we are actually seeing negative rates in Japan and some parts of Europe. I have been expecting to see a correction that lasts more than a week or two; and yet while the volatility has continued to increase, every time it looks like a correction is going to happen, we see something that causes the market to rebound to new highs. Fortunately, this has mostly been caused by a continuing, strong economy. It now appears that sometime in 2020, unemployment will fall below the all-time low 3.4% set in 1953. This is the reason I look for a market correction without a long, deep recession like we saw in 2007-2009 but a more traditional recession of 6-12 months. With this in the background, we need to be prepared for continuation of political, trade and foreign happenings that will trigger the algorithm trading that exacerbates every move in the equity markets.
I do expect that we will finish 2019 with a double-digit gain in both the Dow 30 and S&P 500 indices. I also expect that October will be problematic with a stronger finish to the 4th quarter this year. The continuation of impeachment rhetoric and all the election hijinks as well as Brexit makes it very difficult to have a clear picture of how 2020 will go. History tells us that the S&P 500 has been up 18 of the last 21 general election years going back to 1928, so there is precedent to expect next year to be positive. We can’t compete with the computer trades, but when you step back and look at the market directions over time, the secular bull market for stocks looks to be intact. If we believe that the cycle is changing sooner, we will make sure to send updates.
The 4th quarter has always been the most significant for our revenue, and I don’t see any reason for that to be different this year. We all need to manage our client’s expectations of long term returns versus “gaming” the markets. If you had invested in the S&P 500 on January 2, 2007 and continued to hold, you would have been even in February of 2011 after a sell off of more than 50%. If someone had waited until the market started down in December of 2007 to invest and held on, it only took until June of 2008 to get back even though the index fell 30% in the interim. That market cycle saw the biggest selloff in history; and yet by continuing to wait, it was not a disaster for any of our clients. Those folks that still own the S&P have more than doubled their money in either scenario. This is obviously not a guarantee, but it is a statement of historical fact and helps clients understand the risk from a time basis and not an investment risk basis. Because past history is no guarantee of future results.
Have an enjoyable holiday season and let’s look forward a prosperous new year!
Dave Wickersham, CEO