I typically comment on the performance of the S&P500 – a US stock market index that represents 500 US stocks of various industries and revenue size. Given the US is the largest single economy in the world, its proximity to Canada, the global nature of most of its industries and its stock market depth and breadth – it’s a pretty good indicator of the overall stock market. The US election results not-withstanding, there is an interesting trend worth noting.
As noted by First Trust analyst Bob Carey: from June 20th, 2014 to February 11th, 2016, the price of a barrel of crude oil went from $107.26 to $26.21 – a drop of 75.6%. The result was 2015 was the worst year for S&P 500 earnings since the financial crisis of 2008. This earnings recession continued to the first quarter of 2016.
From Febryary 11th to the end of Sept, oil gained 84.1% rising to $48.24 – ending the S&P 500 earnings recession.
The media have been all over this earnings recession ( shall we call it a pause?) inciting continued fear of this bull market. Take no heed – this market has some room to run.
The 3rd quarter earnings should be out soon but the estimates from the Bloomberg chart will be pretty close. But look at next years estimates – notice something? If these estimates are anywhere close to reality, they should be a record number for earnings.
Trumps win continues the anti-establishment trend that started when Harper lost to Trudeau and when the UK voted to leave the European Economic Union. The average voter wants change – despite misgivings. So what is Trump saying that we can expect from his administration? His platform included US infrastructure spending of $1Trilion planned, tax cuts of $600 Billion resulting is the repatriation of money back to the US, which should help fund internal growth. The infrastructure spending and tax cuts will push the US Debt to GDP ratio to over 100% – which is a big number. The US $ however continues to be the global safe haven.
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The memory of the last financial crisis (2008-2009) may have faded for you – if you didn’t make the big mistake. At the time, we all felt the short term pain of the 30%+ decline in our portfolio’s and the agony of the following 18 month up and down grind. Those that made the big mistake and sold – continue to pay as the markets continue their upward trajectory.
The grinding market incline from the last bottom in March of 2009 has felt agonizingly slow at the time but in retrospect has recovered relatively quickly. We all lived through the so called experts predicting immediate recessions, wild inflation and deflation. Through out that period I preached faith, patience and discipline – because history told me everything I needed to know. This had happened before and has always turned out the same – the equity market recovers and goes on to new highs.
I have met a few people who lost significantly during that period. They made the big and fatal mistake – they sold at the bottom. With the media screaming economic apocalypse and never having gone through a period like this and with no one to guide and support them – their error caused a tremendous loss in their savings – never to be recovered in this lifetime.
As a financial advisor guiding my clients in their financial affairs I see my duty as preventing them from making the big mistake. Anything that risks a significant portion of my clients assets – buying or selling at the wrong time, too much invested in one asset, over spending. A level and cautioned approach is what I offer. My clients financial success and a life well lived is the reward.