2019 is working out to be another fantastic year for the stock market. As of the end of last week, the S&P500 was up more than 25% year to date.
But does it feel like it? Of course, this YTD result comes on the heels of a near 20% decline for stocks at the end of last year. 2018 saw the market stumble mightily after a great rally, and it’s understandable that investors are nervous about setting up for another leg down in similar fashion. Matters such as trade wars, Brexit, and impeachment have weighed on the collective psyche of investors. In fact, according to a survey of more than 3,400 global respondents conducted by UBS Global Wealth Management, a majority of wealthy investors expect a significant drop in markets before the end of next year, and 25% of their average assets are currently in cash.
What’s more, according to the most recent Barron’s Big Money Poll, only 27% of money managers are bullish on the market’s prospects over the next 12 months-- the lowest reading in more than 20 years. Almost one-third of professional managers surveyed for the poll consider themselves bearish.[i]
“The rapidly changing geopolitical environment is the biggest concern for investors around the world,” said Paula Polito, client strategy officer at UBS GWM, in a statement. “They see global interconnectivity and reverberations of change impacting their portfolios more than traditional business fundamentals, a marked change from the past.”[ii]
The S&P 500 was up nearly 21% through the first nine months of this year, and the reality is that these types of gains are pretty normal. Since 1926, the stock market has been up double-digits through the first three-quarters of the year on 42 occasions, so almost half of all calendar years have given investors double-digit returns going into the final quarter of the year.[iii]
And momentum is the rule rather than the exception. Of the previous 41 years in which the S&P 500 was up double-digits through September 30, there were gains in the 4th quarter on 35 occasions. In 23 years since 1926, the S&P was up 20% or more through the first three quarters of the year. The market was down in the 4th quarter in just 3 out of those 23 years.[iv]
Those three quarters were brutal, though; they were the infamous crashes of 1929, 1987 and last year, 2018, when stocks fell by double digits.
So, the good news is that stocks spend more time going up then going down, and they typically go up at a rate faster than other asset classes. The bad news is that big gains can be followed by big losses. Ultimately, volatility in the stock market is a good thing for investors; if it weren’t for volatility, we’d probably all own a bunch of CD’s. But volatility is the reason stocks return more over the long term, and concern for volatility is the emotional price we pay to ultimately enjoy higher returns.
[i] Jasinski, Nicholas: “Big Money Poll: Bears Rise to a Two-Decade-Plus High,” Barron’s, October 26, 2019.
[ii] Goncalves, Pedro; International Investment. November 18, 2019.
[iii] Carlson, Ben; “Forget Last December—History Tells Us the Stock Market Rally Will Continue Through Christmas,” Fortune Magazine; October 29, 2019.
[iv] ibid
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