“Beware that, when fighting monsters, you yourself do not become a monster...
for when you gaze long into the abyss, the abyss gazes also into you.”
― Friedrich W. Nietzsche
On a price-only basis, the S&P 500 is up roughly 8% per year since 1950. That’s a return of more than 33,000%. What’s more, if you include dividends, the annual return jumps all the way to 11.6% per year for a total return, including dividends, of more than 350,000%.
As investors, it’s important not to ever lose sight of this. It’s certainly wise to perform reasonable analysis about specific stocks or sectors, but the stock market is a very fickle belle, and you may be right or maybe wrong.
Just look at Marko Kolanovic, until recently JPMorgan Chase & Co.’s chief market strategist and co-head of global research. Poor Marko. He was steadfastly bullish through most of 2022 as the S&P 500 Index plummeted 19% and as other strategists across Wall Street lowered their expectations for equities, and then he turned bearish just as the market bottomed, missing last year’s 24% surge in the S&P 500 as well as the 17% gain so far this year. I’ve been doing this long enough to know that that won’t always get you fired on Wall Street, but it probably should.
Or how about Morgan Stanley’s Mike Wilson? Wilson has been one of Wall Street’s most prominent bears for many years and only dropped his bet against the U.S. stock market in May. He was bearish in 2023, calling for a 15% decline. Somehow, Mike is still gainfully employed.
One more. How about the legend, B of A chief strategist Mike Hartnett’s, track record? Mike is gnarly-- probably the single best strategist on the Street-- but he was pretty bearish through most of 2023’s rally and has been relatively neutral on stocks this year. He hasn’t lost as much of his clients’ money as Kolanovic or Wilson, but he probably hasn’t made much more than any given retail dart-thrower, either.
My role in authoring Insights is to impart the same core message twenty or thirty times a year in such a way that readers won’t ever think I’m repeating myself. The reason for that is that good advice rarely changes, while markets change constantly. I write, at least in part, to inspire intellectual engagement, and that doesn’t work if it doesn’t sound good, but the questions investors have are universal and come up again and again, quarter after quarter:
· Am I going to be OK?
· Do I have enough money?
· What if markets fall?
· What if inflation rises?
· What if we go into a recession?
· How do I maximize after-tax returns?
__________________________________________________________
In a market swayed by non-fundamental factors, discerning reliable return sources is likely to be key to generating alpha… for investors who need to generate alpha. For many, beta is more than enough to accomplish all your goals.
For fixed income, it's important to choose bonds that can withstand volatility, which typically means sticking to investment-grade and avoiding junk.
Among equities, tech stocks previously traded at a significant premium, but they have experienced pretty significant corrections and have recently become more attractive. Specific news within the sector, such as the delay of Apple's AI rollout and the postponement of NVIDIA's AI chip release, has raised concerns, but overall tech fundamentals remain strong. Opportunities continue to arise, particularly around generative AI.
While a dimming US economic outlook poses challenges for equities, European small caps may be less affected due to their domestic focus, and emerging market equities have shown resilience amidst the plethora of current geopolitical uncertainties.
In our view, the Fed’s impending rate cuts should bolster the US stock market. However, this will be the first time in history that the Fed has abandoned a tightening cycle without having achieved any easing of home, stock or food prices, all of which are near all-time highs, so we see persistent labor market weakness and inflation as likely to eventually put a kibosh on the festivities.
Click here to invest with Chad.
For disclosure information please visit:
Comments