Memorial Day is a time I personally like to reflect on the great men and women who gave and or put their lives on the line for our great country. My grandfather served in the heart of WWII at to me an unthinkable age, his late teens and early twenties. I think of my life and opportunity I was given and what I was doing at that same age, and the differences are quite stark. I can never truly fully comprehend the feeling and embodiment of what my Grandfather and other great servicemen and women have gone through. But what I can do is appreciate the world and life we’ve been given due to the selfless acts of these brave Americans. I will always be thankful and appreciative on Memorial Day for the life and opportunities bestowed upon me.
As we pause for the long weekend, there are many parallels to the financial markets today. We have now seen a year of consolidation in the benchmark indices, a pause if you will. Economic Data and indicators have paused and slowed dating back to late 2014 and Early 2015. Revenues on the S&P 500 have done something quite similar. Earnings have not surprisingly followed suit. Cycles have projected a time period of digestion and consolidation. Valuations in certain areas remain quite fair. Interest rates remain pretty muted at these lower bounds we’ve been trading in. Global growth has been a bit choppier and even sleepier. Domestic Growth defined by GDP is sluggish, but still growth. Quite a confluence of a lot of boring right?
Well, that’s the environment we are in and as frustrating as it is to see little progress it really is quite healthy for the longer term prospects of this Bull Market. The S&P 500 ran a 6-year marathon from 2009 to mid 2015. In percentage returns you may even call it a sustained sprint as it rose 300%! Our GDP grew from $14 Trillion to over an estimated $18 Trillion in that time. Earnings on the S&P have risen from $50 to over $100+ per share, during that same time. We’ve seen the economy work back to full employment, housing return to levels many thought would never be seen again, and on and on.
When you back out and compare what we are going through today to similar times in history, what we are seeing is even more normal. Corrections in the Market and economy are either achieved through price or time. 2011 was price driven as in a quick 7 month spurt the market corrected roughly 20%. Today, we are 1 year in since the Market made new highs and we’ve seen from peak to trough a 15% decline. This correction, or consolidation is much more of a combined time and price example.
When economic indicators, market fundamentals and our cycle work all smoothly pull-back and pause together it usually precedes a nice leg higher in all of them which pushes the stock market in a new advance once completed. Make no mistake about it, all the work we do and utilize as our component inputs which ultimately lead to our strategy decisions and outputs to your portfolios look very different than what proceeded the financial crisis in ’08 and the ’02 tech debacle and many other bear markets.
As we enjoy our family and friends, rest and rejuvenate over the long Memorial Day weekend, the Market and economy are doing much of the same. Our veterans provided many opportunities to our country’s future over many different points in history that weren’t necessarily recognized at the time. We believe the market is doing much of the same today.
Best to your weekends and thank you to all of veteran clients, friends and family past and present.