“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.”— John Bogle, founder of Vanguard and inventor of the index fund
The steady diet of concerning headlines from around the world has been unsettling for most Americans, regardless of where they sit on the political spectrum. We know equity markets loathe heightened uncertainty. What is happening in Washington, London, Beijing, and North Korea is generating an enormous amount of political uncertainty. But, political as well as international uncertainty has yet to generate economic uncertainty. Hence—and this is important—we have seen little downside in stocks since the bottom of the correction on December 24 last year. In fact, the S&P 500 is up 18.4% since the bottom. It really is about the economy.
Perhaps the political intrigue is not as elevated as it was during the Watergate era, but let’s take a high-level look at what was happening economically in the early 1970s and compare it to today.
Table 1: Then vs. Now
| 1973-74 | 2019 |
| Inflation rose to double-digit levels, peaking at over 12% | Inflation remains low |
| Interest rates were spiking higher; prime loan rate hit 12% | Interest rates remain low |
| OPEC oil embargo roils economy, oil prices rise four-fold | A glut of oil exists today and prices are well below levels of recent years |
| The unemployment rate jumped as the economy fell into a steep recession | Employment is rising, the unemployment rate is at a cyclical low, and the economy is expanding |
Source: St. Louis Federal Reserve, U.S. State Dept.
As Table 1 illustrates, the fundamentals are radically different today.
The brief synopsis above provides some context in relation to the markets. Our job is to be your financial advisor and financial confidant. That is where we focus our energy. We’d be happy to entertain any questions you may have about your portfolio, your financial plan, and how we believe various events of the day may affect your investments. But let’s stick to your financial roadmap.
Too sanguine?
We were told by the pundits that political gridlock and any unraveling of Washington’s tax cut and infrastructure agenda would pound stocks. It has not yet unraveled, but bold economic changes from Washington are at risk. Yet, stocks are within 5% of another all-time high. An investor-friendly agenda in the post-election climate that fueled market gains has been replaced by stronger economic fundamentals.
Simply put, the fundamentals eclipse the negative headlines, whether those headlines originate in the U.S. or overseas. The longer-term focus of the markets has always been the economic fundamentals. We believe that focus has not changed. Unless the economy is significantly impacted, unexpected and alarming events may create short-term volatility, but they rarely create long-lasting impact.
A tribute to Jack
Jack Bogle died on January 16, 2019, at the age of 89.
Jack may not have the same name recognition as the legendary Warren Buffett, but his contribution to the world of investing cannot be understated. He founded the Vanguard Group in 1974 and pioneered the first index fund two years later, a mutual fund that was tied to the S&P 500 Index. Investors ponied up just $11 million. It was mocked as “Bogle’s Folly.” Today, there are over $13 trillion invested in passively managed mutual funds or exchange-traded funds (ETFs) worldwide.
Jack’s idea transformed an industry, significantly lowered costs for large and small investors, helped democratize investing, and, to bring it home, is the staple, style, and philosophy of the approach we use here at The Nalls Sherbakoff Group to assist you as you move toward your financial goals.