Improving Economy and Markets
The stock market just ended its best first quarter since 1998. This strong performance continued on the heels of a strong fourth quarter last year. The fuel for this rally has been economic improvement across the board in the U.S. as well as renewed hope for the economic situation in Europe. Corporate earnings remain strong and we are finally beginning to see meaningful improvement on the employment front. Consumer confidence and spending are rising and people are beginning to become more optimistic that the economic improvement is for real.
While we are generally optimistic for the markets this year, a pullback in stocks over the near term would not surprise us. Healthy markets occasionally pause to digest gains, and since the last six months have been straight up, we are probably due for some rest to catch our breath. Pullbacks of 3% to 5% in the stock market happen every two to three months on average. In fact, since the market low in early March of 2009, there have been 11 separate pullbacks of at least 5%. The average pullback has been 8.8% over an average of 18 days. The deepest pullback was 17.2% over 24 days last August. During those three years and eleven pullbacks, the stock market has more than doubled.
Many people ask us when the market volatility will subside and more “normal” markets will return. In reality, “normal” and volatile are one and the same. While we sometimes have extreme periods of volatility, such as late 2008 and early 2009, the reality is that capital markets move up and down on a routine basis. The ratio of up days to down days in the stock market is 53% to 47%, which surprises most people. This is why we always talk about the importance of keeping a long term view of investing. There simply is no way to be in stocks when they are rising and out of stocks when they are falling. We design and construct our portfolios to take advantage of the benefits of diversification and the correlations of different asset classes to each other. While we can’t eliminate your portfolio’s volatility, we can spread out and minimize the risk as much as possible.
Lastly, we would like to recognize Harrisburg, Illinois, the site of a devastating tornado in February. We opened an office in Harrisburg in 2000 and have many friends and clients there. The terrible effects of the tornado are truly hard to fathom and tremendous damage has been done to their town. While we grieve for those who lost their lives, we are thankful that Sandy Smith and all of our clients were spared. Please join us in offering your thoughts and prayers to the people of Harrisburg.
About Wabash Capital
Wabash Capital is an employee-owned registered investment advisor based in Terre Haute, Indiana, providing investment advice and professional portfolio management to individuals, corporations, banks, trusts, retirement plans and endowments. To learn more about our business, please visit www.wabashcapital.com.
