The broad US stock market just experienced its 11th-worst 6-month period since 1971. It’s always possible that markets get worse before they get better. Yet, history has shown that stocks tend to do well following a [very] bad stretch.
A stock market correction is defined as a 10% decline in the market. We officially entered a correction earlier this week. We recognize that most of our clients are seasoned, savvy investors that do not hit the panic button after a correction. We are always impressed at how calmly the bulk of our clients handle recessions and even bear markets. That said, it’s still painful for all of us (advisors and clients alike). We know our clients are not immune to being troubled over market downturns – particularly when coupled with troubling geopolitical events.
If you were living in 1900, you likely did not own any stocks. Only 1% of Americans at that time owned stocks (vs. 56% of Americans today). And if you happened to be a part of that elite 1% stock-owning group in 1900, your main investment option was railroad stocks. Railroads were 63% of US stock market value!
As students of investing and markets, one of our passions is helping our clients grow in knowledge and appreciation of how the US stock market works. What exactly is "the stock market"? Today, there are approximately 3,667 publicly-traded companies in the US -- collectively worth over $50 trillion.
The last time I wrote about bitcoin on our blog was September 13, 2018. I was dunking on bitcoin back then, gloating about how smart we and our clients were for avoiding this asset during the late-2017 hype that drove bitcoin up to $19,835. That post hasn’t aged very well. And you know what, this post may not age well, either. Predictions are the toughest game in town. An impossible task. I won’t make any price predictions on bitcoin today, but I will share a bit of what I know.
Via Sam Ro at Axios: pre-COVID, the US already had a record number of job openings, at over 7.5 million. Today, we are another 22% higher in job openings -- at 9.2 million. The upside of this labor market is the underlying reality that our economy is growing. Wages are going up (but so is inflation).
We’re starting to hear the “I-word” mentioned more often as of late. Inflation is on the rise. The Federal government’s money printing machines have been on overdrive, and the US economy has taken note. Prices have begun to tick up across the economy – most notably in residential real estate. The counterpoint (as made by the Fed) is the inflation we are seeing today is merely temporary, a hangover from the COVID shutdowns.
U.S. Treasury bonds have not yielded this little interest since the 1940s. Based on the data, it’s fair to expect U.S. bonds to return something on the order of 2% per year over the next 10 years. You might then ask: why do we own bonds at all? The answer is because there is value in stability.
Do you know how to make a pencil?
Our family's Spring Break trip to Florida in 2000 took place during the infamous dot-com bubble burst. I can vividly remember my dad's reaction to the news of the bursting of the tech bubble. He had some of his portfolio (I'm not sure how much) invested in dot-com stocks via the Nasdaq Composite Index, which declined by 25% that week of our Spring Break. It ultimately took 15 years for the Nasdaq to get back to its high from the year 2000.
These past few weeks have seen extreme stock market volatility, the WHO declaring a pandemic, and the U.S. implementing travel restrictions and many other measures (with more to come, assuredly) to help combat the spread of the COVID-19 coronavirus.
Amidst the politically-charged climate in which we live, we can lose sight of the progress mankind has made over time. We often remind our clients the U.S. stock market has handsomely paid patient, long-term investors over time. One simple method for gauging economic progress over time is to consider the evolution of the largest publicly-traded companies in the US. Of the ten largest companies in the US today, only four were founded prior to 1970 (JPMorgan Chase; Johnson & Johnson; Procter & Gamble; and Visa).