The View at the Top of the Year – 2019

Almost two years ago to the month, I penned a commentary on my grandmother’s quilting after what had been at the time, a seemingly volatile period in the markets that resulted in almost a 10% drop in the S&P 500 index.  The date was February 1, 2016.  Fast forward to 2018 and we are again experiencing very volatile markets with some indexes seeing corrective (10%) or bear market (20%) declines from earlier peaks.  Before revisiting that archived missive, here are some past and present figures to consider.

2018 Recap[1]

  • In 2018, the only asset class with positive returns was Cash. All other categories were negative for the year, with the exception of fixed income, which was flat. For more details, see 12/31/18 Quilt Chart below.

  • December was one of the worst months on record and 2018 one of the worst years in a decade.
  • Federal Reserve (FED) raised rates 4 times and lowered expectations for real gross domestic product (GDP) growth and inflation.
  • FED has lowered 2019 rate hike expectations from 3 in September to 2 at the December meeting. Market is speculating that no rate hikes will likely occur in 2019.
  • US unemployment rate at historical lows, driving higher wage growth.
  • Retail holiday sales were up 5.1% (in-store) and 19.1% (online).

S&P 500 Movement (February 2016 to December 2018)

  • February 1, 2016 – 1,880
  • October 5, 2018 – 2,885 (last peak); 45% increase from February 1, 2016
  • December 31, 2018 – 2,506; 13.1% decrease from October 5, 2018
  • February 1, 2016 (1,880) to December 31, 2018 (2,506); 33.3% increase from February 1, 2016

These figures highlight two fundamentals of equity markets.  First, there will always be volatility and declines.  Second, if viewed long term, the markets historically provide opportunities for growth.  The key is to stay invested and try your best to overlook short-term volatility.  Despite the recent declines and the unknowns that lie ahead, we advocate that clients remain invested with a fully diversified portfolio.  We recognize short-term volatility can be very hard to ignore but if taken in context, holding your investments is the best course of action to achieve your long-term financial goals.

For clients who were with us prior to and during 2016, please forgive my updated replay.  For our newer clients, I hope you find the story about my grandmother helpful when trying to make sense of the current markets.  I can’t predict if my Mimi would keep her equities, but I certainly hope she would heed my advice and look to her own love of quilting colorful remnants as validation.

Click here to read Mimi’s Cathedral Quilt.

[1] Data sourced from JPMorgan