I’m sure our Foundation investors were disappointed in the performance of their funds when they got their October statements. The November statements will generally reflect a very slight improvement, but as I write this on December 11th, both the Dow and S&P are about 3% below their November closes. Since their all-time highs in September, the Dow and S&P 500 are both down about 9%. While this is surely not what we had hoped for, I offer several observations from our advisors at Merrill Lynch.
First, remember that the US economy is generally in very good condition. 3rd quarter GDP grew an estimated 3.7%. It is expected to grow by 3.8% for all of 2018 and by 3.2% in 2019.
Second, Employment is at its highest level in decades. And one thing we know about people with jobs is that they tend to spend money, which should continue to move the economy forward. Price Waterhouse Coopers expects holiday shopping to be up 5% over last year’s very good number.
Third, companies are making money. More than 75% of the companies which reported 3rd quarter earnings exceeded the analysts’ expectations. And their guidance for future quarters was also generally positive. Merrill Lynch expects corporate earnings to grow by 6.2% in 2019.
Two of the reasons given for the current correction are 1) the Fed’s continued increasing of interest rates and 2) the tariffs which have recently been imposed on a variety of products (together with the responsive tariffs placed on our products by affected countries). ML believes that the Fed will raise rates 5 times between now and the end of 2019, each time by ¼ point. The markets seem to be protesting vigorously and the pressure may influence the Fed to ease up a bit. That would be helpful. Presidents Trump and Xi Jinping met in Argentina at the economic summit several weeks ago and declared a willingness to work out their trade differences by the end of February. The results of those talks could send the markets up or down sharply, however both leaders are feeling pressure to resolve the issues which divide them.
Lastly, I remind all of us that:
a) Been there; seen this – we’ve seen these types of setbacks before
b) we’ve been saying all year that normal volatility is back and we should expect at least two (2) 10% corrections (or more) in most years (this would be our second in 2018)
c) because we are invested for the long term, we will ride out this downturn and be a part of the anticipated upswing
d) because we are patient investors, we don’t get too excited when the market races ahead, and we remain calm when the market corrects.
As they used to say back in the 70’s “Keep the faith, baby!”
For our DevCo investors, know that your investments are chugging right along earning you interest each day. While you don’t experience the effects of a surging market, your prudent, patient approach to the management of funds which you’ll need in the next 0 – 5 years will insure that the funds are there – with some nice interest – when you need them.
As always, if you have questions, don’t hesitate to call Ted Soto at 804-521-1122.