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4th Quarter Market Commentary

Herald the last days of this bull market

The end of this bull market is surely coming! So, what is the right strategy as we approach the possibility of a coming recession?

Well the first fact is rather obvious: The recession is not here. Maybe it is coming soon, but the economy is currently doing exceptionally well. Real GDP is up,

  • 2.9% year over year
  • 4.2% quarter over quarter!1

In fact, we see an acceleration in growth as of September 30, 2018. The average expansion growth is 2.3%. So, this economy in the U.S. is well above an average expansion.

But some would argue, “stock prices are so high.” However, the growth in earnings per share (EPS) more than justify stock prices in general, up 27% so far in 2018.2

So, if not now, when do we start to prepare for falling stock prices?

In a word, LATER.

Equity market performance around bear markets3

On average, if you bailed from equities 6 months before the peak of a bull market, you would give up 15% gains. Moreover, if you stay invested until 3 months after the market peaks, you would be down an average of 7% from the peak. Of course, this coming bear market may be more voracious than average. But, if you did delay your exit for 3 months, you would still be 8% ahead of the guy who got out 6 months before the peak! Here’s the lesson: the last days of a bull market can be very rewarding.

So, relax. Enjoy the expansion while it lasts. Corporate earnings are up. People are working and money is flowing.

As interest rates continue to rise, it makes sense to add a little income over the coming months. But, moves toward a more balanced portfolio would

perhaps be prudent over the next six months or a year. Now is not the time to protect gains. Short term volatility is just that. Most likely, it is short-term.

Working to help you realize your goals,

 

David L. Harris, PhD, ChFC, CFP®
Wealth Advisor & Personal CFO

(310) 318-3700
www.harrisadvisory.com

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1 JPMorgan Chase & Co. (2018, September 30). Guide to the Markets for the Fourth Quarter 2018, p 19. Retrieved from https://am.jpmorgan.com/blob-gim/1383407651970/83456/MI-GTM_4Q18_Linked.pdf?segment=AMERICAS_US_ADV&locale=en_US
2 JPMorgan Chase & Co. (2018, September 30). Guide to the Markets for the Fourth Quarter 2018, p. 8. Retrieved from https://am.jpmorgan.com/blob-gim/1383407651970/83456/MI-GTM_4Q18_Linked.pdf?segment=AMERICAS_US_ADV&locale=en_US
3 JPMorgan Chase & Co. (2018, September 30). Guide to the Markets for the Fourth Quarter 2018, p. 65. Retrieved from https://am.jpmorgan.com/blob-gim/1383407651970/83456/MI-GTM_4Q18_Linked.pdf?segment=AMERICAS_US_ADV&locale=en_US

Harris & Associates is a Registered Investment Adviser. This commentary is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Harris & Associates and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Harris & Associates unless a client service agreement is in place.


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