December 18, 2017

What Happens When The Stock Market Breaks Almost All The Records?

What Happens When The Stock Market Breaks Almost All The Records?

 

  • Second longest SP500 bull market – 3,222 days +301% vs. 4,494 days + 582% from 1987 to 2000.
  • If stocks outperform bonds in 2018, it will be a 7-yr consecutive track record not seen since 1928.
  • Slow but steady — Not a single day in 2017 when SP500 fluctuated more than 2%, a level of low volatility not seen since the mid-1960s.
  • Gradual grind higher — SP500 positive for 13 months in a row, second only to 15-month streak in 1959. 10-consecutive-up month periods avg +50% so current +27% may have room to grow.
  • Dow 25,000 reached four 1,000-point milestones in one year for the first time ever, which was the second-fastest rise in US history. The fastest was 10,000 to 20,000 in 1999 in 24 sessions.
  • US job growth – December was 87th straight month of job growth extending this as the longest ever stretch on record. The second-longest was 1986 – 1990 & was only half as long.
  • As good as US stock indices performed in 2017, international & emerging markets performed better even as relative international valuations became cheaper in Europe & Japan.
  • In late stages of economic recovery, International stocks have historically outperformed U.S. stocks since the inception of the MSCI EAFE index in 1969.
  • For 4Q17 the W&A Global Equity model increased 4.9% & the W&A Global Fixed Income model increased +0.7% bringing year-to-date to +16.1% & +3.0% respectively as of 12/31/17.*
  • When SP500 up at least 19% in a year, it climbed 68% of the time the next year & the average move in the following year was +8%.

 

What is Driving Record-Breaking Performance? A Bubble? Or Fundamentals?

  • Synchronized global growth — U.S. recovered earlier & other economies are catching up.
  • Strong US corporate earnings – 1Q17 + 14%; 2Q17 +10%; 3Q17 + 6.4% & 4Q17 est +10.5%.
  • US tax reform – not reflected in earnings yet, but certainly reflected in the stock market.
  • Slower, longer – Fed tightening cycle this time has been to raise rates 5 times in 2 years vs. last cycle of 17 increases in 2 years.
  • Declining supply – # of publicly traded companies are half what they were in 1996 & stock buybacks have reduced the shares outstanding making earnings look better.

 

What To Do?

  • Nothing if you have already rebalanced & have a comfortable asset allocation strategy with enough cash to cover your short-term withdrawal needs.
  • Ask your 2017 tax preparer to give you an indication of whether you will be able to itemize in 2018, since 2018 is likely to be different from 2017 due to tax reform.
  • Listen to Al Green & stick with your financial plan “whether times are good or bad, happy or sad”. And if you don’t have a wealth manager or financial plan, call Waddell & Associates.

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*The performance information provided is for informational purposes only. The results are un-audited & represent composite returns, net of fees. Additional information on composite returns presented can be obtained by contacting W&A. Past performance is not a guarantee of future results, and investments carry the risk of loss, including the risk of loss of invested capital.

 

Sources include The Wall St Journal, FactSet, Advisor Perspectives, The New York Times & publicly available web sites.

 

Phyllis R. Scruggs

Author: Phyllis R. Scruggs

Phyllis had been associated with W&A for a number of years before joining the firm, acting as a consultant to the company in its formative stage and subsequently as a client. Prior to joining W&A, Phyllis served as Vice President, Corporate Finance at Morgan Keegan & Company, Inc. She was involved in all aspects of its investment banking activities, including mergers and acquisitions, valuation studies, and initial public offerings. She earned registrations in NASD Series 7 (Registered Representative) and Series 63 (Blue Sky). Phyllis holds an MBA in Finance as well as M.Ed and BBA degrees from the University of Memphis. She is a Chartered Financial AnalystTM(CFA®) and a Certified Financial PlannerTM(CFP®) Licensee. She is past-Chairman and past-President of the Mid-South Society of the Financial Planning Association (FPA) and served on their Board of Directors from 1995 to 2000. During her term as President in 1998, the Mid- South Society of FPA was chosen the Outstanding Society of the Year by the national FPA organization. Her community volunteer activities include MIFA and the Women’s Foundation for a Greater Memphis, where she served as Treasurer, Chair of the Finance Committee and currently chairs the Investment Committee. She also serves on the Board of Governors of The Seaside Institute in Seaside, FL.

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Phyllis R. Scruggs

Phyllis R.

Scruggs

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