Market Commentary from Kramer Wealth Managers

For investors who have been investing for some time know that it is quite normal to see market declines from time to time yet it doesn’t make it any less unsettling to live through. We’d like to share with you some data from JP Morgan Asset Management to help put the recent market volatility in a longer-term perspective.

This slide shows the S&P 500 Index over a 38-year period from January 1, 1980 to September 30, 2018. Keep in mind that the S&P 500 is not an actual investment but rather an index which tracks a group of stocks and is used just as a representative of the overall stock market. Each of the gray lines on the chart represents the different years, with the numbers at the top of the lines representing the number of times within that year, the S&P 500 declined by more than 1%. For example, the market was down more than 1% in one day eighty times in the year 1980, while 2017 was a relatively quiet year, having only eight of such declines within the year. So far this year, as of September 30th, we had 36 declines of more than 1% per day. If you look at the year 2009, these declines of 1% or more happened 117 times, yet the total return for that year was 18.82%. It’s important to remember that short-term volatility is very normal and it is important to maintain focused on the long-term.

Now some investors feel they just can’t stomach the recent volatility we have seen, are concerned about a possible correction, and have asked us to move out of equities. Of course, we certainly understand this type of emotional reaction and the difficulty of weathering through volatility. However, history shows us that some of the largest market gains we have seen have often come after some of the worst days in the markets. The chart below shows the impact of being out of the market during those times.

This chart shows a $10,000 investment made on January 1st of 1998 and held until December 29, 2017. Keep in mind, the late 1990’s was the height of the dot.com era so an investment over this period would have weathered through not only the burst of the dot.com bubble, September 11th, the war in Iraq/Afghanistan, and the 2008 financial crisis. An investor who remained invested over that period of time would have seen his/her account value grow to $40,135, an average annual return of 7.2%. If they were to miss just the 10 best days in the markets over that same period of time, their return would have only been an average annual of 3.53%, less than half as much. Missing the best 20 days would reduce their average annual return to only 1.15% – only 20 days out of 20 whole years! And if they missed the best 30 days, they would actually have a negative return over those 20 years. This is why we so strongly encourage our clients to remain invested through volatile times. We know it is not easy but statistics consistently show that trying to time the market (either when to get in, or when to get out), never works.

The next chart shows us annual returns vs. intra-year declines and how volatility within the year does not necessarily mean the entire year is a loss.

Again, we are looking at the S&P 500 Index since 1980 and each gray bar represents one year. The number at the top of the bar shows the annual return for that year while the red dot at the bottom shows the percentage by which the market was down at some point during the year. The 38-year average intra-year decline is 13.8% per year, yet the annual returns were actually positive 29 out of 38 years. Only nine years out of the 38 years did the market actually end in negative territory. Does this mean we won’t end up in the negative this year? Of course, we can’t predict from one year to the next.

The next chart shows research done by Dalbar on the Average Investor returns, based on investor patterns in fund purchases, redemptions, and exchanges, compared to investment returns of various asset classes if they were purchased and held for a 20-year period from 1998 to 2017. Each of the bars represents different asset classes, including REITs (real estate), Gold, S&P 500 (US stocks), and Oil. The 60/40 and 40/60 portfolios represent the allocation of stocks to bonds. Of all asset classes over this period, the average investor fared worse than all of them, only slightly edging out inflation. This is typically because the average investor is trying to time the market, often selling when the price drops and buying back after it has already recovered. Again, this is why we encourage our clients to step back and take a longer-term view of the equity markets.

We’ve been asked if the current volatility we are experiencing is indicative of the beginning of a bear market or if that is something that will come further down the road. To be quite honest, there is just no way to know. We do feel the fundamentals of the US economy from a purely statistical perspective remain strong. At the same time, we know the market has been on a steady climb for nine straight years and we know it doesn’t go up forever. Whether a larger market correction is going to happen soon, next year, the year after, or if the current volatility is all we are going to see, we simply can’t say. What we do know, however, is that we tailor our clients’ investment portfolios based on their goals, risk tolerance, levels, and time horizon so that they are positioned to navigate through various market cycles to try and achieve their personal goals. And assuming those goals and risk tolerance levels have not changed, we do not believe short-term changes to a portfolio are warranted in times like these. We recommend staying the course and as always, if you have any questions about your portfolio, feel free to reach out to your financial advisor.

 

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The data provides was gathered from sources believed to be reliable, however, it cannot be guaranteed. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not guarantee of future results. This material may contain forward looking statements and projections. There are no guarantees that these results will be achieved.

Securities and Advisory services offered through FSC Securities Corporation, member/FINRA. Traditional/Fixed insurance offered through Kramer Wealth Managers, which is not affiliated with FSC Securities Corporation. Neither Kramer Wealth Managers nor FSC Securities offers tax or legal advice. Branch offices: 9099 Ridgefield Drive, Suite 101, Frederick, MD 21701 | 240-439-6889 (VP) | 240-39-6929 (V) 611 S. Congress Ave. Suite 440, Austin, TX 78704 | 512-410-0739 (VP/V)

Market Month: April 2018

The Markets (as of market close April 30, 2018)

April was marked by the impending tariff war between the United States and China. Tensions between the world’s two largest economies certainly affected stocks both home and abroad. Escalating strife in Syria posed an additional reason for investors to be concerned. However, surging energy stocks lifted the market as crude oil prices approached… Click here to read the rest of this market summary, Market Month: April 2018.

Quarterly Market Review: January-March 2018

The Markets (as of market close March 29, 2018)

The first quarter of 2018 began as the fourth quarter of 2017 ended: with strong market gains. The Nasdaq led the way by the end of January, posting a monthly increase of almost 7.40%, followed by the large caps of the Dow (5.79%) and the S&P 500 (5.62%). The employment sector remained strong, with 239,000 new jobs added in January and average hourly earnings climbing 0.3%. Consumer prices rose 0.5% in January, while personal income increased 0.4%. The trade gap continued to… Click here to read the rest of this market summary, Quarterly Market Review: January-March 2018.

Market Month: February 2018

The Markets (as of market close February 28, 2018)

Despite some positive economic signs, rising consumer confidence, and favorable corporate earnings reports, February marked the end of the 10-month winning streak for the benchmark indexes listed here. Concerns over rising inflation and interest rates triggered a notable sell-off early in the month and pushed volatility to the forefront. Although the indexes listed here recovered much of their early February losses to close the month ahead of their 2017 closing values (with the exception of the Russell 2000), stocks did not maintain… Click here to read the rest of this market summary, Market Month: February 2018.

Market Month: January 2018

The Markets (as of market close January 31, 2018)

Equities pulled back off of their record-setting gains at the end of January, but not enough to forestall a month of significant gains. January provided several noteworthy storylines for investors to consider. Unemployment remained low as the number of available job openings continued to recede, possibly signaling a push for higher wages. Fourth-quarter corporate earnings were relatively strong. The president’s first State of the Union address preached… Click here to read the rest of this market summary, Market Month: January 2018.

Annual Market Review 2017

Overview

The year 2017 was eventful, to say the least. President Trump and Congress tried, without success, to repeal the Affordable Care Act, known as Obamacare. However, the new year-end tax law included the elimination of the individual health insurance mandate. The U.S. economy started slowly but picked up… Click here to read the rest of this market summary, Annual Market Review 2017.

Market Month: November 2017

The Markets (as of market close November 30, 2017)

The Dow soared over 300 points on the last day of November to close above 24000 for the first time in its history. Hopes for a tax overhaul may have contributed to investor confidence in equities. Each of the benchmark indexes listed here posted favorable monthly gains. The Nasdaq continued its strong performance in 2017, gaining over 2.0% in November, while the small caps of the Russell 2000 climbed close to 3.0%. After gaining… Click here to read the rest of this market summary, Market Month: November 2017.

Market Month: October 2017

The Markets (as of market close October 31, 2017)

Despite continuing drama in the White House and the fury of Mother Nature, stock growth remained steady for much of October. Favorable corporate earnings reports, a strong jobs sector, and growing consumer income overcame any trepidations investors may have had. Each of the benchmark indexes listed here posted monthly gains, led by the large caps of the Dow, which gained over 4% for the month and is up over 18% year-to-date. The tech-heavy Nasdaq has remained… Click here to read the rest of this market summary, Market Month: October 2017.

Quarterly Market Review: July-September 2017

The Markets (as of market close September 29, 2017)

Trading during the summer months is customarily slow, and the summer of 2017 proved no different. July kicked off the third quarter with equity markets enjoying noteworthy gains over their June closing values. Both the Dow (2.54%) and S&P 500 (1.93%) posted significant gains, as did the Global Dow (3.13%). The Nasdaq posted a very favorable 3.38% monthly increase. The yield on long-term bonds changed very little from June as investors seemed to focus on… Click here to read the rest of this market summary, Quarterly Market Review: July-September 2017.

Market Month: August 2017

The Markets (as of market close August 31, 2017)

Equities in August saw many peaks and valleys throughout the month, finally rallying at the end of the month. Strong second-quarter gross domestic product (GDP) figures, steady job gains, and increased consumer spending sent stocks higher, despite stagnant inflation and heavy personal and financial losses caused by Hurricane Harvey. The large caps of the S&P 500 and Dow posted marginal monthly gains with the tech-heavy Nasdaq leading… Click here to read the rest of this market summary, Market Month: August 2017.