We all know the saying, “those who cannot remember the past are condemned to repeat it.” Growing up, I never fancied myself a history buff. As a matter of fact, it probably was my least favorite subject in school. But when it comes to the markets, understanding the history is very important. It can only help us be equipped for the future.I’d like to focus on how interesting the past year has been in the markets. The hope, quite honestly, is we’ll understand that this time isn’t any different from past events and we’ll be more financially astute moving forward .
Let’s hop in my time machine phone booth (a la Bill & Ted) and go back to the beginning of 4th quarter last year. The markets were doing well. The S&P was up over 10% for the year and we were ready for a nice landing to end the year. I remember it well, as I was on a family vacation out of the country. I had thought “this is great, markets are at an all-time high. I can relax. What could go wrong?”
What indeed. A few Presidential tweets on China and we had one of the worst 4th quarters of all time. My vacation became stressful. A lot of chatter about the recession finally arriving emerged and the equity markets dropped nearly 20% in those three months alone. Undisciplined investors started to panic.
Bonds, on the other hand, were down all year at the start of the 4th quarter due to rising interest rates. It looked like we’d have only 4th down year in US bonds since 1976 and that was OK; stocks were up handsomely! But the 4th quarter had in store a rebound for bonds to slightly above break even for the year.
All of this happened in a relatively short period of time. Those that predicted a correction were finally vindicated, and those that didn’t, were rethinking. So, what happened from there?
No one thought after the 4th quarter of 2018 that the 1st quarter 2019 would look any different. Newspapers, radio, TV, clients, pundits, and analysts all spelled out a recessionary year for the US economy. Justifiable right?
This is where the story gets interesting. As soon as 2019 started, the markets did an about face. The Fed stopped raising rates and some more optimism about trade wars began. The first quarter 2019 was incredible. As a matter of fact, it was the best January in the S&P 500 since 1987!
Let me repeat that for effect. After one of the worst end of years in the stock market, the very next month was historically good! Interesting, right?
Magic 8 ball answer: Decidedly so!