“A year from now, you’re gonna weigh more or less than what you do right now.” -Phil “Dr. Phil” McGraw
The year in review
The corollary to Dr. Phil’s quote above is, “A year from now the market will be more or less than it is now.” No one knows where 2017 will end up, but we do know how 2016 went. We could say the markets were without order or control, but we prefer to use wild and woolly. It started out in a very rocky fashion, with comparisons to 2008 that were too numerous to count. However, let’s be clear. As we’ve emphasized in past summaries, markets don’t always trade in a quiet, controlled, and orderly fashion. But, just because we run into turbulence doesn’t mean it’s time to retreat into cash. Volatility has been and always will be part of the investment landscape. The critical point is how we manage and mitigate that risk.
We’ve talked about the hazards of timing the market in the past. So here is another way to look at it. In order to successfully time the market, you have to be right twice–getting out near the top and getting back in somewhere near the bottom. Some folks may get lucky and correctly double down, but there isn’t anyone who can accomplish such a feat and do so consistently.
We have just entered 2017 and markets are calm and near record highs. That follows a year when the S&P 500 Index rose by 12%, including reinvested dividends, according to Morningstar. In fact, it’s the sixth year in eight the closely watched index of large-company stocks rose by more than 10%. Going forward, there is one thing we can promise you—we will run into another round of volatility.
But we are always here for you. If you see something in print or on the Internet that causes you concern, please don’t hesitate to reach out to us. We are always happy to answer any questions or address any concerns you have.
Looking ahead
The year is starting in an upbeat fashion. The economy is moving ahead at a modest pace, interest rates remain low, and odds of a recession this year appear low. Moreover, Thomson Reuters forecasts S&P 500 profit growth of 12.5% this year, and consumer and small business confidence is up sharply in wake of the election.
However, the economic skies are never fully clear, and we are always monitoring the landscape. For starters, the forecast for corporate profits is predicated, among other things, on continued economic growth. The late-year optimism that pushed the major indexes to new highs was aided by optimism that tax reform, regulatory relief, and infrastructure spending are on their way. But what shape will tax reform and new spending take? Compromises will be needed and major new spending, if it passes the Republican Congress, could have huge lead times.
But what if a miscalculation sparks a trade war? We learned from the 1930s that a breakdown in global trade has serious consequences. In no way are we forecasting a downturn of that magnitude, but instability among the nation’s key trading partners would likely create unwanted volatility. That said, though problems abroad have not had a material impact on the U.S. economy, the problems have created temporary angst, slowing but not ending the current bull market. The evidence reveals that over the past 50 years, bear markets have been primarily associated with recessions.
A new recession and bear market are inevitable, as is an eventual economic recovery and new bull market. While changes to your personal situation may cause us to revisit your investment plan and portfolio allocation, a disciplined approach has historically borne the greatest dividends.
We hope you’ve found this review to be educational and helpful. As we like to emphasize, it is our job as financial advisors to assist you. Thank you very much for the trust and confidence you’ve placed in our firm. We treasure our relationships with our clients and are honored and humbled you have given us the opportunity to serve as your financial advisor, and seek to serve a few more people like you. If you know of someone who would benefit from our advice and services, we would welcome an introduction.
DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.