Markets “In a Nutshell” for December 26, 2018

Investment Week at a Glance

Stocks dropped last week. The Dow Jones Industrial average lost 6.9% while the S&P 500 fell 7.0%. The New York Stock Exchange Composite (2,000 stocks) slumped 6.0%. The “average investor’s index” (Value Line index) dropped 7.4%. Foreign stocks (DJ Global ex U.S.) were down 2.3%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 2.79%. (Data sources: Barron’s Financial, Wall Street Journal)

Ending up a rough year for stocks

Just a couple months ago U.S. stocks were achieving new all time highs amidst the best employment numbers in 49 years and a robust U.S. economy. Stocks have since experienced a relentless decline and in just a 2 ½ months we have officially entered a “bear” market (defined as a 20% drop from stock price highs). The drop in stocks has dragged stock indexes into negative territory for the year. The Dow is down 12.1% for the year and the S&P 500 12.3%. The NYSE Composite has dropped 16.2% while the Value Line Index has fallen 21.3% for 2018.

Time to panic? “No,” says market strategists

Leuthold Group’s chief market strategist Jim Paulson says December’s ugly stock performance could help launch a 2019 rally to remember. Paulson believes the recent market panic is in its late stage and we could see a stock rally that carries the indexes towards the all time highs. In the meantime, investors should be prepared to see negative returns on their 12/31/18 investment statements.

Understanding the ups and downs of the stock market

The current bear stock market is the first since 2007-09. Nobody likes bear markets which tend to shave 30% off stock values. Yet they are part of the ups and downs of the market cycles. There have been 13 bear markets since World War II or one every 5.5 years. Bear markets have averaged 21 months in length although some have lasted as short as 2-3 months.

What should investors do?

Simply stick to your longer term investment/financial plan. Use bear markets as an opportunity to buy at lower prices in anticipation of the next move up in stocks. Younger investors who have multiple cycles to go before retirement can afford to be more aggressive than older retirees who will need to be more cautions and make sure they have some lower risk investments.

Quiz:

As stated above bear markets last an average of 21 months. According to Morningstar, how long has the average bull market lasted?

a. 25 months

b.  49 months

c. 72 months

d. 97 months…

Answer is below…

 

Have a good week!

 

Answer to quiz:

d. 97 months.