Market All-Time Highs & Crashes: What Does It All Mean?

The U.S. Stock market just eclipsed an all-time record. Markets have recovered from spooky summertime blues on the back of several catalysts.
They are:
  • Catalyst: A better-than-feared corporate earnings season based upon consumer durability. GettyImages-517322676The American consumer remains healthy, and more importantly, well-positioned to be able to absorb inevitable downturns. Debt levels are at 40-year lows, while average earnings versus purchasing power are at all-time highs. We disproportionately like to focus on the geo-political headlines. But you and I, as consumers, still make up over two-thirds of the economy, and we are looking good and making prudent choices.
  • Catalyst: The U.S. and China appear to be edging closer to completing "phase one" of a trade deal. We know we just said avoid focusing too much on headlines, but they do drive markets in the short-run, and the momentum has turned positive. We just don't believe that a worst-case scenario will manifest itself.

  • Catalyst: The Federal Reserve is expected to cut interest rates on Wednesday for the third time this year, which works as a stimulus for the economy. December 2018 was the worst December for markets since 1931, partially because the Federal Reserve was continuing to raise interest rates amid a global economic slowdown, so this bodes well for continued growth.
While we always cheer markets moving higher, this is the scariest time of year for investments and this year is especially significant: 90 years ago today, the Stock Market Crash of 1929 occurred, which kick-started the Great Depression. Over 25% of Americans were unemployed, the stock market lost nearly 85% of its value, and investment egg-heads like myself were jumping out of windows on Wall Street. Yes, scary indeed, especially for us egg-heads. By no means are we calling for another Great Depression, but there continues to be an entire Trick or Treat bag full of reasons to go crawl under a rock. But to be honest, there always have been and always will be. Geo-political risks remain with Russia, China, and even Turkey now, and it's not even Thanksgiving yet! Commenting on geo-politics that actually matter for markets in the long-term, the recent headline event we believe received far too little press was the recent attacks on the Saudi Arabian oil installations that coincided with OPEC announcements for further oil production cuts. Similar events in the late 1970's led to a severe recession and a near quadrupling of oil prices. The effect today: less than a 2% move in oil prices and an economy that keeps on humming. These are the types of long-term geo-political issues that have a direct effect on markets, but unfortunately, they just don't sell subscriptions.
 
You can dress up as a rock to go hide under this Halloween or you can accept the fact that the price of admission to healthy long-term gains is making peace with the inevitable losses and volatility that, in the heat of the moment, feel severe and never-ending.
 
Proactively reviewing your unique investment circumstances and risk tolerance now as markets climb to all-time highs is the only appropriate decision, and we are here to help. Unfortunately, the far more common approach is to reactively (and inappropriately) respond during the darkest financial moments. Jumping during those dark moments is appropriate for the scary Halloween movies, but it is a tried and true path to failure in investment decision making.

 

James Battmer on October 30th, 2019

Posted by James Battmer

James Battmer currently serves as Chief Investment Officer for Resources Investment Advisors. In his role, James is responsible for providing executive oversight of the firm’s investment strategy and execution, in addition to overseeing all institutional and high-net-worth client accounts. James has 20 years of experience in the industry, his experience lies in macroeconomic policy, fixed income management and equity selection. Prior to joining Resources Investment Advisors, James previously worked at UMB Bank and Morgan Stanley.

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