Market Update December 25th, 2018

I hope everyone is having a very Merry Christmas and enjoying family and friends.
I wanted to get an update out before tomorrow, since this incredible string of worrisome news and events (most of which have been self-inflicted) continued on Christmas Eve, triggering an exaggerated selloff on this light volume half-day when most potential buyers were on vacation.
When markets sell off with such sudden widespread pessimism, dominated by computer generated and algorithm based selling, when economic fundamentals remain this solid, they can melt back up almost as quickly as they melted down.
As unsettling as this market is right now, we could not feel more strongly that we have to hang on for the turn. We believe this particular correction has turned into a huge overreaction, setting the stage for an explosive recovery rally.
If anything, we believe this is another opportunity to trim bond allocations (given their recent rally) and add to stock allocations. Not a reason to sell stocks.
Although markets may remain under pressure until we get some positive news to break this severe negative feedback loop, we still believe this is another bull market correction, not the start of a more severe bear market.
10%+ market corrections happen regularly in bull markets. We’ve already had a handful during the current bull market, including one earlier this year. And like we always say, every now and then enough negative news can string together in a row to turn one of those 10%+ corrections into a 20% or greater correction.

While some in the press may declare that we are now in a bear market (the average of which has lasted about 13 months and declined about 30%), we still don’t see any signs of a recession on the horizon that would signal a true bear market.

Although investor sentiment is now the worst it has been since 2011, and volatility may remain elevated for a while, the economy is strong, stocks are cheap by most every metric, and even the global economy looks like it should resume more of an up-trend again. Fundamentals should eventually prevail, and we believe this market will turn and the bull market will resume.

As always call or email me if you have questions, concerns, or just want to discuss your overall portfolio and situation.

Happy Holidays!