2017 4th Quarter Commentary
“IT’S THE ECONOMY, STUPID”
Bill Clinton, 1992
During Bill Clinton’s first run for President in 1992, his campaign slogan was, “It’s the Economy, Stupid.” It was a good campaign strategy. In general, if the public is experiencing a prosperous economy, they tend to want to stay with current leadership. However, if they are suffering economically, they tend to want to change leadership. It could be said that the phrase is also applicable to investing.
Since 11/08/2016, the Dow Jones Industrial Average has risen from 18,332 to 24,837. This is an incredible surge of 35.5%. Some Wall Street Journal headlines about this rise:
“DOW RACES THROUGH 23,000”
WSJ 10/19/2017
“DOW CLIMBS PAST 24,000 MILE POST”
WSJ 12/01/2017
As we all know, the stock market has a tendency to have corrections periodically after a strong run-up. A correction is usually marked by a 10%-15% sell off. Many of our clients are asking if we are expecting a correction at some point. Our answer is: yes. In some ways, a correction is healthy because it shakes out nervous investors and allows the market to go higher. Corrections are impossible to predict, but also tend to be temporary in nature. A periodic correction shouldn’t present any major problem for a long-term, economic investor.
So if we can’t predict corrections, what is the best way to move forward as investors? The answer to this brings us back to the economy. The best way to approach long-term investing is to be an “economic” investor rather than a “short-term” trader. Short-term corrections can often be misleading, but in the long run, the stock prices of good companies tend to increase if the economic environment is fostering growth and business expansion. In short, if companies prosper, their stock prices tend to eventually rise in value. Bill Clinton kept his eye on the economy. As investors, we should do the same.
You may be asking, “Are there any indications that the underlying economy is expanding?” The following quotes from the Wall Street Journal may provide the answers:
“GROWTH TAKES OFF AROUND THE WORLD”
WSJ 08/24/2017
“ECONOMY, MARKETS REV UP”
WSJ 12/01/2017
“HIRING GROWTH POWERS ECONOMY”
WSJ 12/09/2017
“ECONOMY STEPS ON THE GAS”
WSJ 12/19/2017
Last, but not least, the Federal Reserve has been hesitant to raise interest rates for over 9 years. They said they needed the economy to heat up in order to justify higher rates.
“FED HIKES RATES AS ECONOMY PICKS UP”
WSJ 12/14/2017
At Financial Professionals, Inc. we have always believed investors with at least a 5-year time horizon should hold quality stocks in their portfolio, regardless of economic conditions. That is why it is important that we not let the clutter of short-term corrections cause us to abandon our long-term, economic investing strategies.
MAY YOU HAVE A HAPPY & PROSPEROUS NEW YEAR!
Source: The Wall Street Journal (WSJ)