There is an old Wall Street proverb that states, “The stock market climbs a wall of worry;” and, in many ways, that is exactly what we witnessed in the third quarter of 2019. Stocks bounced back in September, after a -1.81% drop in the S&P 5001 for the month of August, as equities climbed over more bricks (US-China Tariffs and the 2’s vs 10’s yield curve inversion) in this “wall of worry.”
In all, we are entering the last quarter of 2019 with a 19% gain for the year in the S&P 500, with only 1.2% of that gain occurring in the third quarter. September closed with the S&P 500 sitting just 1.6% below July 26th’s all-time high, yet has only risen a slight 2.2% from a year ago. The domestic economy remains on stronger footing than most peers, as the Russell 3000 Index has now beaten the MSCI ACWI ex-US in nearly two-thirds of the past 40 quarters.1
It is interesting to look at the things we worry about and how we can begin to believe the current headline topic will be the one to topple markets. To put this in perspective, we suggest you search “Yardeni panic attacks” or go to yardeni.com/pub/sp500panicattack.pdf and page through the visuals where Yardeni Research, Inc. highlights the headlines behind temporary declines in the S&P 500 since 2009 and the negative news headlines related to those declines (what they have termed “Panic Attacks”). In short, they reference 65 “Panic Attacks” over the last 10 years.
The Yardeni research reminds us of how quickly we may forget about headlines that seem so imminent at the time. Do you remember the Japan Nuclear Disaster in 2011, the “Fiscal Cliff” in 2012, the “Fed Taper Tantrum” from 2013, Ebola scare in 2014, “Grexit” scare in 2015, “Brexit” in 2016, N. Korea Missile threats in 2017, and on and on? That is a small sampling of the 65 “Panic Attacks” and all felt very real and as though they would have a lasting impact.
We can draw parallels between how the news cycle is trying to get our attention much like Fred Sanford trying to convince us “This is The Big One.” (For fun go to YouTube and type in “This is The Big One Elizabeth”). When you stand back and look at long-term results, you’ll find that even though there were 65 “Panic Attacks” while we climbed a wall of worry, the result was that the S&P 500 gained more than 300% from the beginning of 2009 to the end of the 3rd quarter 2019.
We certainly do not want to make light of current events and draw a conclusion that there is nothing to fear. We simply need to be mindful that there is always something to fear. Sir John Templeton has a famous quote when it comes to markets: “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”
All of this brings us right back to our basic principles of maintaining a long-term focus with your money and finding the right place to focus your risk level that allows you to feel comfort while increasing the probability of achieving your goals. This is why we continue to apply our fundamental beliefs that risk and return are related, markets are efficient over time, profitability matters, and diversification is key.
As always, we look forward to our next conversation.
1 S&P 500 Index, Russell 3000 Index, and MSCI ACWI ex-US returns source: Morningstar
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