What a Difference a Year Makes!

Jonathan Baird |

The year 2019 closed out the second decade of the twenty first century on a strong note. The S&P 500 index delivered a return of 31 percent. In addition, foreign markets delivered strong double digit returns in both developed and emerging economies. Contrast that with a year ago. For 2018, the S&P 500 returned a negative 4.4 percent. Foreign markets in 2018 delivered double-digit negative returns.

There were a number of items creating uncertainty in 2018; e.g., turnover in the Trump administration, an election and subsequent shift in power in the House of Representatives, North Korea, the China trade deal, and others. But the fundamental measures of the economy, GDP growth, unemployment and inflation, were almost perfect. Despite the strong economy, markets ended down for the year.

What about 2019? For most of the year we were still negotiating the China deal as well as the new U.S. Canada Mexico trade agreement. Then there’s still the North Korea issue, an inverted yield curve, and impeachment. There remains plenty of uncertainty out there. The economic fundamentals remain strong and relatively unchanged from 2018.

The years 2018 and 2019 are quite similar in both (1) economic measures, and (2) in the abundance of news items creating uncertainty. Yet returns for the two years are markedly different. There are a couple of lessons here. First, there is little value in trying to predict market moves despite media outlets that make this their main subject. As Steve Forbes, publisher of Forbes magazine once said: “The success of our magazine depends on the incredibly short memory of our readers!” In other words, financial professionals making forecasts about stocks, markets or the economy get it wrong at least as often as they get it right.

Second, major market moves, both up and down, often happen quickly. You have to be invested to take advantage of such moves. Sitting on the sidelines waiting for the perfect time to buy can be costly. Discouraged investors who sold out after 2018 missed the gains of 2019. Long term investing success is best achieved by having a plan and sticking to it, regardless of short-term distractions.

Personal notes

Congratulations to Minna Green who obtained U.S. citizenship in November 2019. Minna, a native of Helsinki, Finland, first came to the U.S. as a high school exchange student. She later obtained a BBA in finance from SAU and has been with Mustard Seed for six years. Congratulations, Minna!

Whitney Peterson has joined Mustard Seed as an investment advisor. Whitney is a graduate of SAU with a BBA in Finance. She is a Certified Public Accountant with extensive public accounting and tax experience and is a welcome addition to our team of advisors. We’re glad to have you working with us in the Magnolia office, Whitney!