Q3 2017 – Market Summary – October 3

Wow, this is turning into quite a year. We didn’t get any sort of a dip in September as is often the case. On the contrary, markets keep moving forward in an impressively calm manner. Most everything is making money, even small value stocks which did almost nothing for most of the year, even lost a bit for a while, after gaining 26.86% last year.

We experienced a prolonged period of limited returns, especially for stocks outside the U.S., but RIGHT NOW we’re getting what we want/need for long-term wealth creation and preservation.

Our brains are programed for survival more than basking in the glow of a 28% gain in momentum stocks (and what are those anyways you may be asking – call if you want to know), so what can go wrong? Should we be ready to panic? Are stock valuations insanely high? Isn’t this bull market and economic cycle of growth getting long-in-the-tooth?

I still can’t predict the future but as an economist, and constant watcher of markets, my feelings are positive about the next years to come. My take is our global recovery from the economic crisis was severely muted by friction added to the system by our and European governments. Typically, growth in a recovery period is supernormal. In this recovery we barely grew, we barely crawled our way out of the recession so we may not only be able to keep growing but accelerate toward a more normal rate of growth based on historical averages.

That’s what all this progress in the stock market is about, a belief that the potential exists that growth can be stronger and the global economy can be more robust. At the moment there’s scant evidence of a recession happening in the U.S. in the short-term.

On a historical basis certain baskets of stocks are extremely expensive but stocks outside the U.S. are still much less so and they’ve had some catching up to do.

Unexpected events can always happen to immediately change the view, and it’s absolutely certain that at some point in the future the stock market will tumble and the fear center in our brain can say “I told you so,” but if we’re long-term investors we need to be in for times like now and accept that drawdowns are not only normal but healthy.

In all likelihood the most expensive stocks will at some point retreat, and that’s okay so long as that’s not all we own. We can always buy more when they go on sale.

As always, we truly appreciate the confidence you’ve place in us with your assets and I want you to feel free to call at any time regarding your portfolio or any personal financial matter.

Sincerely,

Erik S. Wolfers, MBA, CFP^®