The Legacy Perspective August 2017

By Steve Wachs, CFP®

“First, no one knows what events are going to transpire. Second, no one knows what the market’s reaction to those events will be.” Howard Marks, Co-Chairman Oaktree Capital

We started the year saying that the above statement would be our mantra for 2017. So far, this year, nothing has happened in the crazy world in which we live that would change our view.

What we do know so far in 2017 is that the major economies across the world are all expanding for the first time in over 10 years (see the graph below).  Thus, it is not surprising that the worldwide equity markets have continued to perform well with many stock indices including the S&P 500 either hitting or approaching new highs.

What we also know is that at some point stocks will decline in value. In the last 50 years, the S&P 500 has declined on average at least 10% every 24 months. The last one of those drops was February 11, 2016, a little over 18 months ago. Does that mean we are “due” for a drop? September is historically the worst month for stock market performance. Maybe the catalyst will be the debate we will witness in Washington next month over raising the debt ceiling. Here is the view of

Kurt Feuerman, CIO with Alliance Bernstein, “It would be imprudent to deny the possibility of a US equity downturn in the coming months.  But since equity fundamentals are strong and are supported by improving macroeconomic trends, we think the scale of any corrections is likely to be limited.  If investors believe that markets are due for a pullback, that doesn’t mean that they should exit their equity positions entirely.  But the time is right to take proactive steps that can help to keep you invested through bouts of turbulence, while identifying attractive investment opportunities for an eventual long-term recovery.”

Bottom line – we don’t know when the decline will happen. That is why we know having your portfolio diversified among different assets types besides stocks is critically important. Most client portfolios have less than 50% allocated to equity managers which reduces (not eliminates) downside risk. We also are in the process of rebalancing portfolios, which is a fancy way to say we are capturing gains from recent equity increases, to make sure your portfolio has not assumed more risk than you may be comfortable with. It also allows us to set aside funds for income distributions you may need over the next 12 months.

We are approaching Labor Day which is always the first Monday in September. According to the Department of Labor, Labor Day “is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.”

Many of us simply think of it as the end of summer and the beginning of football season. However, it is important to keep in mind that it is the productivity of all workers that leads to the economic growth of this country. It will be workers who will help rebuild the homes and businesses impacted by the tragedy of Hurricane Harvey. At a conference I attended earlier this year, a speaker stated that we were confusing all the dysfunction in Washington with what actually makes businesses successful. He said, “no one in Congress ever stayed up all night drinking Red Bull to create an app.” Whether it is creating, building, teaching, or serving someone, let’s celebrate the workers around the world on this Labor Day.

Recommended Posts