Economic Insights - February 2019

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At the beginning of February, the S&P 500 was up 8+ percent year-to-date and 2019 recorded the best January return in 30 years.  But those great results come after a 19+ percent plunge in the fourth quarter of 2018. 

What does that tell us? 

We know from history that corrections in equity prices are a normal part of bull markets.  Keep in mind that the S&P 500 has rallied nearly 50 percent over the course of the last three years.  So, a 19+ percent plunge doesn’t even reach the “primary trend-line” for the S&P 500.

And, as of February 1, the S&P was already up 15 percent off the lows, while the Nasdaq and Russell indices gained 17 percent and 18 percent, respectively.

Bullish investors who believe in the so-called ”January barometer“ are very up-beat, as of this writing.  This indicator has a stupendous 87.9 percent accuracy in predicting the direction of markets, with only nine major errors in 68 years.  However, let’s keep in mind that 2018 was one of the years it failed.

Looking at the longer-term, money invested in the S&P 500 grew by roughly 390 percent between March 9, 2009 and February 1, 2019.  And since the “secular bull market” break-out in January 2013, it’s up 103 percent.

Most importantly, the recent recovery is further confirmation that this bull market isn’t likely to end anytime soon.  Why?  Swift and violent declines in stocks like the recent 19.8 percent drop over 60 days are usually followed by strong returns down the road, when the economy is still expanding. Conversely, when they occur during a recessionary environment, the index continues to fall into a deep Bear market.

That means that if the economy continues on a decent growth path, investors who remain steadfast in their approach should receive the kinds rewards that were generated after the “growth scare” in February 2016.  For the record, from March 1, 2016 to February 1, 2019 the S&P 500 generated a total return of 49 percent; some investors did worse, but others did better.


So, what is the outlook for the U.S. economy?  Consider the facts.  Industrial production is just barely off its recent eight-year high. (see page 13)

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