Several times per month I attend presentations, listen to speakers etc. talk about the state of the economy, markets, taxes, world, businesses, politics etc. Part of it is of course, related to our business and part is that it is so interesting (to me anyways!). There are so many parts that interact and the amount of information we all have access to can be overwhelming. I try to condense it down so that it makes sense.
Since 2008, the US stocks market have more or less been rising. This is the 2nd longest period of rising stock markets in history. It is different in Canada, because our economy is not as diverse as the US – we don’t have nearly as many industries. Since 2008, in Canada, our stock market has gone up for a few years and then down for one and then up again for a few years and then down again.
There are some people who worry about the high’s and believing that there will be a downturn soon. No one knows for sure of course, but here is what we do know. The things we can measure (i.e. consumer confidence, purchasing manager’s index, risks for recession, earnings growth for companies, valuations etc.) are all strong. This enables us to reduce our uncertainty and plan with some calculation of risk.
Statistically, without a recession markets are up more than they are down, and in an up year there are almost always pull backs of at least 5% and then the markets go up again. Here is a chart from Manulife Investments showing this.
Let’s look at Probabilities
|The probability of…|
|A positive return on the S&P 500 index over 12 months since 1929||68%|
|A positive return excluding recessions||78%|
|A negative return worse than -20% over 12 months since 1929 (excluding recessions)||1.8%|
|A negative return between -10% and -20% over 12 months since 1929 (excluding recessions)||8%|
|A negative return between 0% and -10% over 12 months since 1929 (excluding recessions)||11.7%|
Prepared by Manulife Investments
Many of the investment managers I follow are still very enthusiastic about the potential to invest in solid businesses right now and have good returns. Their thoughts are that a recession won’t be until late 2019 at the earliest. The head of Mawer Investments told me that a comparison would be that we are in the 3rd act of a play, so getting near the end, but the wrong time to leave. The best may be yet to come.
One area of interest is marijuana stocks. Right now they are doing very well. My thought is that some companies will end up having successful businesses and some won’t, but we don’t know who at this point. So if you are able to handle the volatility and want exposure, buying an index fund that owns all the companies based on how many stocks are outstanding (market capitalization) is an easier way. It is still considered high risk, but less risky than betting one on stock.
If you have any questions let me know.