As a child, I’m sure you played some of the famous board games such as Candy Land, Chutes & Ladders, and Monopoly. Remember how frustrating it was to be rolling along, but then suddenly land on that one square that sends you back to Gumdrop Mountain, down the longest slide on the board, or off to jail without passing “Go”?
You might be feeling a bit of that angst as an adult in terms of the stock market this year. In an unusual January movement, the market came out roaring and rose about +7%. However, in February it gave most/all of that growth back and for a short period of time the major indexes were negative for the year. When that happened, and the peak to trough movement of the indexes was measured, the market reached a “technical correction point” of being -10% off its high. That led to talk in some circles of a possible 20% decline in the offing. Had that happened, the words “bear market” would have been echoing through the halls on Wall Street and on newscasts. But then things leveled off and the market moved back upward to even for the year. As of today (05/31), equities markets have again moved into positive territory. Volatility has returned to the markets after an eighteen month period of relatively tranquil, almost idyllic, time for stock investors. Indeed, it was one of the longest periods of time without a minus 5% move in decades.
It is the contrast to that tranquility that has made this year’s ups and downs so nerve-wracking. For the most part, economic news has been very good. GDP is on the rise, earnings are strong, real wages are rising, and we are at high employment rates not seen in many years. There was even an article on the internet about cities willing to pay people to move there to fill job demands. A Wall Street Journal article (05/11) stated that, on average, Fortune 500 companies had increased capital expenditures by +24% as a result of corporate tax cuts and associated incentives. If reinvestment back into businesses continues and the work force is expanded, productivity and growth could get even better. On the flip side is the understandable concern that it has now been almost 10 years since the last major stock market downturn. Does that mean that a significant correction is lurking around the corner? While the data does not seem to suggest a large decline is imminent, the equity markets can be both emotional and fickle and the possibility has to at least be considered as you make portfolio decisions.
We believe your portfolio should be allocated based on when you plan on spending the assets with the money separated into what we call “Time Buckets”. Please give us a call if you’d like to get together and discuss these topics, or any other related financial concerns, you might have. In the meantime, have a great rest of the spring season, and get ready to enjoy the warm breezes of summer.
Ken, Dave, Todd, Brian, Therese and Maja