Market Pulse: 2019 review, 2020 preview (Opinion)
The S&P 500 had its best run in six years, gaining 28%.
The market was strong but individual investors fled stocks at the fastest pace in decades. Investors pulled more than $135 billion from equity investments.
Most of that came out of mutual funds. Even the flows into stock ETFs was at an eight-year low.
What’s that all about?
Investors were clearly apprehensive. I can understand why.
There were uncertainties about trade and tariffs, inverted yield curves (at least for a few minutes), crazy tweets, and an impeachment. Instead of focusing on the well-known negatives, we remained positive by seeing the less obvious.
Here are three:
A combination of easy monetary policy and aggressive fiscal policy (huge deficits) by itself is a recipe for a bull market. And the Fed has indicated that it will be very reluctant to raise rates from here, even if the economy strengthens.
The alternatives to stocks are unattractive and will remain so. I’ve made that point again and again. Not bonds, not cash, not real estate, not gold, not annuities.
Trillions of dollars are in money-market funds and CDs earning barely a token, much of it held by hedge funds that have missed last year’s rally.
Their cash is more powder for the next move higher as they get on board.
And they will.
Finally, most expect global GDP and U.S. profit growth to accelerate.
The fourth-quarter’s uptick in long term interest rates points toward growth, both here and abroad. Plus, the flat earnings growth in 2019 will make for easier 2020 comparables.
Pessimistic investors who withdrew $135 billion must have focused solely on the potential negatives and ignored the many positives.
They concluded that the safe move would be to reduce or even eliminate their stock exposure. A safe move perhaps, but whether stocks rise or fall over time is not a coin-flip.
The long-term uptrend is so clear that with a reasonable time frame there is far more risk being out of the market than in. I am not the only investor aware of the positives, which is why stocks are where they are.
But I believe there are so many skeptics and gun-shy investors — professionals included — who have missed the bull market that prices do not adequately reflect the economic and profit outlook in an environment in which other investments offer little.
That will change.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.