So, Will this Keep Going?
November 20, 2018
By Mike Moreland • Vice President Investments
Last week Krista Biernbaum wrote about the stock market and political cycles. Specifically, she pointed out that the third year of a presidential term is historically the strongest of the four – in this term, that’s 2019. Also, at least since 1942, there has never been a down twelve-month period following a midterm election. Some are great, some aren’t, but all have a ‘+’ in front of them.
Let’s look at another consideration – valuation. The combination of rising earnings and the October correction dropped price/earnings ratios by about one-quarter thus far this year, from almost 22 in January to about 16.5 now. History tell us that when valuations fall that far and fast, it sets the table for a decent recovery year ahead. See the charts below, courtesy of UBS Research.
So we have a pair of pretty consistent indicators, tested over decades of market cycles, that suggest the next year will produce at least fair returns for financial assets. There are numerous uncertainties that might work against this, from rising rates to trade wars to slower global growth. We’re seeing the impact of those fears now – as of this writing the major market averages have surrendered all of their 2018 year to date gains. At the same time, there were no shortages of challenges in past cycles.
We’ll close with words of wisdom you read last week, attributed to my favorite market analyst, Mark Twain: ‘History doesn’t repeat, but it does rhyme.’ We believe the year ahead will reward patient, disciplined, and conservative investors, even if its beginning is rocky.
And, as always, we appreciate your confidence in our services and we look forward to working with you in the years ahead. Please enjoy a safe, wonderful Thanksgiving with your family and others in your life.