Partly Sunny with a Strong Chance of More Uncertainty

Q2 2019 PastCast

Here’s all you need to know (If you’re in a rush.)

The bad stuff…

  • Stocks declined sharply in May, marking the worst May for US stocks since 2010, but also offering a great discount on stocks for long-term investors.
  • A lot of back and forth and continued uncertainty around a future trade deal with China.
  • Proposed tariffs on Mexican imports shocked markets and were then pulled back.
  • Worries about global economic growth slowing and potential conflict with Iran.

BUT…

  • Unemployment remains at record lows and the US economy continues to chug along.
  • June ended as the best for US stocks in more than half a century, as many trade concerns from May dissipated and indications of a slowing economy raised expectations for the Fed to cut interest rates soon (keep reading).
  • The Federal Reserve is expected to cut rates later this year in order to provide a small boost to a seemingly slowing US economy, which despite indications of a slowdown, has continued the longest period of economic growth in our history over the last 10 years.
  • Major US stock indexes like the Dow and S&P 500 returned to, and set new all-time highs in June, following a 9 month roller coaster ride of ups and downs for investors.
  • Stocks of small and mid-sized US companies were the biggest winners for the quarter, while International stocks and even bonds were able to largely keep pace with US stock indexes as well. 

And now for the long(er) version…

The cycle repeats

If you’ve been following our commentary over the last year or so with our recaps and PastCasts, you might be noticing a pattern emerging. Month after month, quarter after quarter, and year after year, markets are forced to absorb news (both good and bad) and react accordingly. This means we regularly see short periods of overreactions in one direction, followed by overreaction in the other direction. This is simply how markets work, and over time this is why those that stick to a consistent plan and don’t try to guess and time the market end up benefiting from the continued historically consistent long-term upward trend. Think about the roller coaster of emotions any investor paying close attention to this stuff has been through over the last 6-9 months or so…

Toward the end of 2018, headlines indicated that the stock market was headed for a 2008 style crash and the economy was certain to be in the beginning stages of recession. Stocks did indeed tank in December ending the month as the worst since the Great Depression for stocks. But then, January came…

January ended as one of the best for stocks in 30 years. Those two months alone provided a prime example to long-term investors of the importance of patience and ear muffs, when it comes to being successful as an investor. Many made the worst, but hardest mistake NOT to make as an investor, by pulling their money out of stocks as they fell in December, only to then miss out on the recovery in January, February, March, and April, which brings us to May, where many made the same mistake all over again, but hopefully not you. 

May and June were just another example we can add to the hundreds of others proving that, historically speaking, there is not a single example of a stock market decline, of any amount, being permanent. There are not always the quick month-to-month turnarounds we’ve seen recently, but the market has always recovered eventually and rewarded those that are patient and continue to invest through into the dips, instead of reacting to what largely amounts to nothing more than short-term, unpredictable noise. 100% of the time!

While it’s easy to get caught up in the hype of a 24 hour news cycle and a home country bias, the best investors don’t let current events distract from their long-term, globally diversified focus. With the help of diversification and a long-term investment strategy, there is no reason to believe markets won’t continue to reward patient, disciplined investors over time, as they always have. 

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