Irrational Exuberance?

Enjoying the Economics fo 2019 Returns So Far?  The 2019 Run in Historical Perspective


Most of us have been enjoying the portfolio boost provided the financial markets so far in 2019. What a run! As you know, financial markets have performed extraordinarily well for the first several months of 2019 (notwithstanding the dip this week – time will tell what today’s market brings). This ride has been noteworthy, and in fact, it ranks as one of the best starts to a year ever, or at least since this data has been tracked. As of May 7th, the three major indices that we track are all up substantially. The US Stock Market is up 15.61%, the International Stock Market is up 11.41% and even the US Bond Market is up 3.11%. This is certainly a welcome about-face from the volatility we experienced in the last quarter of 2018.

However, as we continue to focus on managing expectations, we remind you that these returns are very unlikely to continue to rise at their current rate. If the US Stock Market were to continue its trajectory for the remainder of the year, the annual return would be a substantial 44%. To put this in a historical context, the S&P 500 has returned over 44% just three times in history dating back to 1926. In the last 65 years, it has never returned more than 44%. So, while it is possible we could experience returns of that magnitude, it is highly improbable.

In short, while we certainly are not attempting to predict the timing of the next market downturn or recession (the economy still has record low unemployment and muted inflation), we are attempting to put this incredible run in its historical context. Ironically, we began putting together this small thought piece just prior to this week’s market volatility.

Accordingly, we maintain that it is important to stay fully invested in the risk/return model that is most appropriate for your life stage, goals and risk tolerance.

As always, we are standing by for any questions you have related to the markets, your portfolio, or any financial planning matter.