“Good investors gather information, put that information into current and historical context, then make sound decisions.”
Simply said, bull market runs are fun. This one kicked off in early October and by the end of the month the S&P 500 Index broke free from the trading range that had corralled prices since March. Several other major market indexes have since joined the party, including numerous sector indexes. Last but not least, international equity indexes are also surging higher. This is indeed a global bull market and, as I have said before, there is no better bull market than a global bull market.
Despite the successes that we are currently experiencing, this has not been an easy year. The fourth quarter of 2018 with its -20% decline was brutal, and the 20% ‘super-bounce’ that occurred the first quarter of 2019 was almost unbelievable. Even professional investors were afraid to exhale. When major markets settled into their six-month long trading range the corrections were sharp. The S&P 500 Index experienced a -7.5% correction May 1st to June 3rd, a -6.8% correction July 29th to Aug 5th, and a -5.7% correction September 20th to October 2nd. Fortunately, all of these corrections found support that ultimately propelled markets higher.
The best news is that this bull market run is not just being driven by domestic large cap equities. Mid cap and small cap domestic equities are making positive moves as well. Additionally, almost every domestic sector index that we follow is participating, including industrials, financials, technology, communications, basic materials, healthcare, and consumer discretionary equity sectors. Traditional defensive sectors such as utilities, real estate, and consumer staples have also gained strength. Finally, the energy sector has broken a downtrend that has suppressed prices for the past six months and appears to have considerable upside.
Developed international equities didn’t waste any time by lagging far behind the domestic equity breakouts. The broad MSCI EAFE Index broke out of its trading range hand-in-hand with the S&P 500 Index, led by Europe and quickly followed by Japan. Emerging markets were more cautious, waiting for some promising confirmations that the U.S./China trade talks were progressing satisfactorily. Their breakouts didn’t occur until December. There can be no doubt, however, that the international equity market is responding well.
As has been the case for the entire year, bond markets have not flinched despite the strong equity market moves. This has been true for both domestic and international bond markets, although domestic bond markets have shown the most progress. The Bloomberg Barclays U.S. Aggregate Bond Index is up +8.54% YTD, while the Bloomberg Barclays Global Aggregate Bond Index is up +6.18%. Interest rates remain near record lows, both in the U.S. and abroad, so these positive returns largely reflect the favorable viewpoints of institutional investors for the respective economies.
We continue to find it incredulous that all of this good news is not being featured by the news services. We are most certain that when there is bad news to report on the economy, jobs, interest rates, foreign trade or stock markets, it is the lead story, spun with accusations, and blame. Even financial news networks are resorting to devices and drama in their reporting. The bottom line these days is that the truth is reflected in your own results and your own realities. This is why, as financial advisors, we work so hard to help you frame your experiences and manage your expectations with a realistic picture of our current environment. We remain vulnerable to sharp corrections which may be exaggerated by computer trading programs. But the underlying economic picture is very positive, so we remain very positive.
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
©2019 Edward D. Foy
Sources: Bloomberg.com, Marketwatch.com, StockCharts.com, Morningstar