looking forward to 2019!
Well this has certainly been a tough month! The markets are on pace for their worst December in many decades. This volatility is particularly exacerbated by low trading volume during the holidays, as we discussed in detail on this past Sunday’s radio program (Sundays at 9:00 AM on News Radio 93.1 FM / 540 AM or on any of our podcast channels that you can connect to through the icons on the top right corner of www.NelsonFinancialPlanning.com).
The market decline appears to be highly emotionally driven in response to the headlines and untethered to the economic picture. In fact, I met with the local American Funds executive on Monday for breakfast and discussed the markets recent behavior. Their view is that the economic fundamentals are quite sound. Certainly, the holiday spending numbers (the highest level in several years with a 5% increase over last year) suggest that consumer spending, which accounts for over 70% of our economy, is in pretty decent shape.
Much of the emotion is driven by a confluence of headlines involving trade tensions with China, a Government shutdown and the lack of clear direction from the Federal Reserve on the future of interest rates. One or all of these headlines will get resolved in the weeks ahead and the markets will recover accordingly.
In the meantime, unfortunately, the media will be screaming about being in a bear market. Technically a bear market occurs when there has been a 20% or more decline in the markets. Bear markets are a normal part of the markets over time and frankly signal better days ahead. The attached chart (courtesy of Putnam investments) highlights the simple fact that after a significant decline, markets go on to produce a more significant rise over a much longer period of time. It is hard to argue with that kind of history and why investors should not be selling when these declines occur. The stock market rises a lot more than it falls. The notion of being able to predict these movements is an exercise in futility, particularly given the speed at which the market moves.
If you have any questions or concerns about your personal situation, please feel free to contact us. The office is open this week and next week (with the exception of the holiday on Tuesday, January 1). We are also in the process of organizing our client meetings for the first part of 2019 so look for our usual January letter in your mail in a couple of weeks.
Enjoy the rest of 2018 and we look forward to a better 2019!
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