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Explanation of 2019 Market Performance


When the market is up as it was last year, explanations are not really needed. Nobody cares why. It was up! Anyway, here is my explanations about the way I see what happened.

In 2018 the markets tanked at the end of the year turning a good year into a loss. Averaging 2018 and 2019 still gives us a great performance. However, the way to look at the markets is with the view of the purpose of investing. I, and almost every good advisor, continually and perhaps at nauseum say that investments should be made based on a plan to create a means to achieve goals and financial security. That being said the investment plan should include some stocks and also fixed-income investments. I have also suggested that if your timeline is less than seven years, you should not invest in stocks. Stocks are somewhat risky over a long period but can be very risky over short periods, which I feel is less than seven years.

The prism that stock gains or losses should be looked is with a long term lens – at least seven years and probably longer. When you look at it that way the year to year swings do not seem so histrionic. Do not misunderstand me, I feel much better when the market goes up rather than down. But we should be in the market to achieve long term goals; and while we need to assume ups and downs, the overall expectation should be that the market will grow along with the economy over long periods of time. It also should mean that short term swings, changes, bumps up or down, and even politicking and election results, should not change your attitude toward the long term prognosis of the economy or stock markets. Looking at the big picture should create a shield that protects you from the emotional reflexes of inherent volatility and changes.

When I talk about the market, I am referring to a well-diversified portfolio and not an assemblage of individual stocks you think will “beat” the market. In the charts posted two days ago, I show how the four major stock indexes fared last year and also over the last ten years. Three of the four indexes have similar performance while one, the NASDAQ, did significantly better than the others. And while the equity markets did very well last year, it seems that the U.S. dollar against the Euro and Yen was pretty flat and fixed income yields dropped. There are a lot of reasons for the interest drops and that is for another discussion, but let’s look at the stock dividend yields.

The yields on the DJIA and S&P 500 held up pretty well with much smaller drops than the fixed income yields. However, one reason for the drop in the yields is that the stock values increased so much, but the dollar amounts of the dividends kept pretty stable with slight increases. I like to see where the dividends come from and for both indexes they come from current earnings. The dividends paid were about 47% of the corporate profits. This is an upward trend over the last few years. I personally feel more comfortable when the payout is about 40%. That would leave 60% available to buy back shares or, better, to fuel growth. However, if you read my previous blogs I expressed pretty consistent opinions about the reasons for the lack of growth negating the need for that cash, so the payout percent has risen. Further, corporate earnings have been rising over the last five years. One reason for the S&P 500’s lower earnings than the DJIA is the high prices of the FANG stocks relative to its earnings. Look for my next blog to illustrate the major stocks in each of the three large-cap indexes.

Gold went up but not as much as the stock indexes and a dismal 39% over the last ten years, with no dividend payments and if you own the actual gold, you will have storage and insurance costs.

Both the ten-year cumulative changes graph and annual percentage changes chart shows similar trends for the four indexes. Basically they all go up and down at the same time, although in different degrees.

Because of the great year stocks had there is nothing more I could say that could impress you, or provide you with a different look, support or comfort. However, last year’s explanation was just after the disastrous December and I refer you to what I wrote then. I was right on with what I said as were my other explanations that followed a down year. Here is a link to last year’s explanation if you care to see what I wrote.

Do not hesitate to contact me with any business or financial questions at emendlowitz@withum.com or fill out the form below.

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