Equity markets ended the year on a high note, with the seasonal Santa Claus rally pushing the S&P 500 to a new all-time high. The stock market is now trading at more than 18x forward earnings, but there are plenty of questions around what next year will bring. The combination of uncertainty around the trajectory of global growth, trade and monetary policy has led some investors to think that this bull market may begin to cool. However, we still see upside in equities, and it is times like these when it is most important to revisit some of the fundamental principles of investing.
The fact of the matter is that no year sees everything go entirely right. As we close the books on the past decade, it is worth revisiting some of the things that have plagued markets at various points in time:
- 2010 – Greece’s sovereign credit rating is downgraded to junk by S&P
- 2011 – U.S. government debt downgrade
- 2012 – Eurozone economy experiences double-dip recession
- 2013 – Taper tantrum
- 2014 – Ebola outbreak
- 2015 – U.S. dollar spikes, oil prices crash
- 2016 – Brexit begins
- 2017 – Hurricanes Harvey, Irma, and Maria hit the U.S.
- 2018 – S&P 500 sells off nearly 20% to end the year
- 2019 – U.S./China trade tensions escalate
The bottom line, however, is that the key to successful investing starts with getting invested, and then staying invested. As shown in the chart below, trying to time the market is extremely difficult, particularly when good days and bad days tend to cluster together. In fact, over the past 20 years, six of the ten best days occurred within two weeks of the ten worst days. The best approach during this period was to ignore the noise.
Asset markets are inherently forward looking, and the reality of the situation is that although 2020 is now underway, you cannot invest with 20-20 hindsight. Some things in the coming year will go right, while others will go wrong; the key is to build a portfolio that can keep your clients comfortable as the market twists and turns.
Get invested, stay invested
Growth of $10,000 investment in the S&P 500 between January 4, 1999 and December 31, 2018