Investor Polarization

Dear Clients and Friends,

We are less than a year from a presidential election, and over the next year you will hear a lot about the continued political polarization of our country’s electorate.  The same forces that work on the electorate are also at work in the market – market participants are becoming more and more polarized.  The bull market that began over 10 years ago has reached a point where investors feel like they need to claim a position on the market and act accordingly, without compromise.  As in politics, the polarization that exists today in our market has more to do with superfluous information than reality.

The economy has performed well this year, and the market has bounced back considerably from the sell-off in December of ’18.  As the market trended higher, the number of bearish commentators and authors renewed their pessimistic vitriol against a market that is setting up for a crash.  Many of the worries last year at this time have been muted, and therefore have had much less impact on the market’s direction.  But the polarization between the bulls and bears has reached a fever pitch as the market extended its gains and hit new all-time highs.

In order to properly understand, or at least add context to, the discussion on polarization we have to look closely at the forces at work.  First, we are experiencing the longest uninterrupted economic expansion in our nation’s history.  We have very low unemployment and the consumer is in better shape than in any point in recent history.  However, manufacturing in the US is suffering from a malaise and the debt burden both private and public is growing.  The double-edged sword of the market being at an all-time high is either viewed as a potential positive or an obvious negative.  Either the market is going to crash or going to keep going higher.  But if history is a guide, we should view the market highs as a by-product of money seeking out returns, rather than an omen of financial Armageddon or a foreshadowing of momentous future returns.

What investors need today is roughly the same thing we need in the political world -a healthy compromise.  Value exists in our markets, but as the markets go higher value becomes more difficult to find.  A lot has changed since our last bear market; the baby boomer generation has taken retirement from a goal, to a realization.  The millennials have gone from living with their parents, to buying homes and becoming parents.  The market has gone from a low on the S&P of 667 to a record 3100, and the pessimism that haunted investors after 2008 has slowly disappeared, or has it?  We deal with the unknown by controlling what we can control and allowing good planning to take care of the rest.  The compromise that investors must come to terms with is this:  there will be another recession and bear market and they will have to own stocks before and after this eventual downturn.  No one knows when it will happen and how severe it will be, so we act prudently in our allocation and take risk only when that risk makes sense.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All investing involves risks including loss of principal. No strategy assures success or protects against losses.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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