It’s autumn in the “Northwoods” and the leaves are turning. The nights are getting cooler and we start thinking about digging out the warm weather gear and stocking the freezer with soup (or is that just me?) The year has raced by and for me at least some family milestones have been reached, such as another granddaughter’s 1st birthday!
Additional weeks have also gone by without a major (or even minor) market correction and I am noticing that once again we are hearing a lot about how the market is “too high” and that a “crash” is likely or that an “investment bubble” has formed and will soon burst. In the words of one of my favorite philosophers – Yogi Berra – it’s like “déjà vu all over again”!
When this sort of talk becomes too common I find it helpful to refresh my memory on how successful the investment markets have been through the years of both good times and bad. An example is a piece from Putnam Investments, which you can find by clicking this link:
https://www.putnam.com/literature/pdf/II511.pdf
The article describes 18 different events since 1940 that caused market downturns, including:
The attack on Pearl Harbor in 1941
The Cuban Missile Crisis in 1962
President Nixon resigning in 1974
The 1987 stock market “crash”
The September 11 terrorist attacks in 2001
The mean loss of all these events was -10.2%. The mean gain 5 years later was 14.1%. My point in bringing these numbers up is to simply say that the investment markets have weathered war, threats of war, and all sorts of political crisis before, so are we really facing something different now?
Let me also say that I don’t have a crystal ball, so it really isn’t possible to say with any certainty what is going to happen in the markets other than that the markets will go up and the markets will go down. In the short term it’s anyone’s guess. That’s why money you need soon should not be invested, but should be in the bank, a money market, or some other very good place where the value won’t be subjected to extreme fluctuation. It’s also why money you don’t need for a longer period of time shouldn’t be anywhere else but the markets!
Keep in mind too that the economy right now isn’t too bad! According to the U.S. Bureau of Labor Statistics (BLS) the unemployment rate as of August was 4.4% - a rate that Janet Yellen, the current Federal Reserve Chairman, thinks is very near full or “maximum” employment. The BLS also puts the current inflation rate at about 1.9% annually – still very low by historic standards. Bloomberg reported that U.S. companies are having their best earnings season in 13 years, thanks in large measure to rising foreign sales which should also help sales in the later part of the year. Do these numbers sound bad to you?