Had you asked anyone, during fourth quarter 2018, if the S &P 500 would be up 18.54% halfway through 2019, they would have thought you were insane. Fortunately, we have experienced a positive bounce from a market low point. Long-term investors generally don’t pay attention to short-term market fluctuations. We thought it might be interesting to look back at how we arrived at 18.54% in the S & P 500 year to date.
Over the last six months:
- In January the Federal Reserve reversed course on interest rates. The market rallied to all-time highs.
- In February a return of inflation put a scare in the markets sending the Dow down 3,200 points, or 12%, in just two weeks. It felt like here we go again. The fear returned that the Federal Reserve would raise rates. Speculation by investors was brewing.
- In March, Central Banks in the U.S. and Europe were leaning to a more supportive economic growth policy. The markets recovered from February and posted gains.
- In April, the calm before the storm. The month was propelled by positive economic news, economic growth beat expectations, unemployment remained low and inflation subdued. The markets continued to rise.
- In May, the markets initially rose, then the trade war escalated between the U. S. and China with the U.S. increasing the tariff percentage from 10% to 25% on certain Chinese goods. Out of nowhere the U.S. talked about imposing tariffs on Mexican imports starting in June. The markets grew nervous and the S & P 500 dropped 6.58% in May.
- In June, the U.S. and China agreed to a truce on further tariffs and again opened talks. The market rallied and had its best June in decades.
Who knows what the future has in store for markets? Investors are aware that the U.S. stock market is at all-time highs and has set new highs several times during the past ten years. Following the market too closely can feel like a marathon but can also be exhausting in the short run if one reacts, as above. We do know smart investment decisions can be made while the market is up. Even in a sideways market (it goes up and then comes right back to where it started) money can be made. We also know that taking profits from time to time smooths out volatility in your portfolios. We think 2019 is the ideal time to harvest profits in your retirement accounts (401k’s, 403b’s, IRA’s); also consider looking at after-tax returns in your taxable accounts. Watching a gain disappear due to a sustained downward market makes no sense when those gains can be preserved by paying some tax. Paying taxes is prudent when you have gains in your portfolio.
You may see an increase of trade confirmations as we rebalance and take profits during the most opportune times as markets rise. These profits may not be used today but they will be handy in the future when the market retreats. Many experts write that we are in the late cycle of the markets. This might mean markets could advance for another six months to two years. Since we never try to predict the direction of the markets, we think it prudent to take profits when they are present.
We look forward to discussing any concerns or questions you may have. Enjoy the second half of the year knowing you’ve pocketed some of the benefits from the first half.Thomas L. Menzel, CFP® Laura Biermann, CFP®President Vice President
IMPORTANT DISCLOSURES: The opinions presented in this communication are subject to change without notice and no representation is made concerning actual future performance of the markets or economy. Information obtained from sources is considered reliable but is not verified. The research and other information provided herein speak only as of its date. We have not undertaken and will not undertake any duty to update the research or information or otherwise advise you of changes in the research or information. Performance information presented is not an indication of future results and index data is provided for market reference purposes only. This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. This document is the property of Legacy Financial Advisors and is intended solely for the use of the Legacy client, individual, or entity to which is addressed. This document may not be reproduced in any manner or re-distributed by any means to any person without the express consent of Legacy. This material is for educational purposes only. Mis-transmission is not intended to waive confidentiality or privilege.