Toca corregir. Los mercados occidentales se van a dar un descanso.
If you had to describe the perfect market environment, what would it look like?
The following attributes might come to mind:
1) High returns with low volatility and 2) low drawdowns, with 3) global participation, 4) both stocks and bonds rising, 5) the economy expanding, 6) earnings growing, and 7) an easy Central Bank.
Sound too good to be true? Let’s take at where we are today…
1) High returns with low volatility:
The S&P 500 is up 9.7% thus far in 2017 and has achieved this return with only 7.0% annualized volatility (note: all data herein is through June 2).
2) Low drawdowns:
At 2.8%, the maximum drawdown in the S&P 500 year-to-date is lower than every other year with the exception of 1995 (note: on closing basis).
The median intra-year drawdown since 1928 is 13.1%. Since 1928, there have been only five years that did not have a 5% drawdown the entire year: 1954, 1958, 1961, 1964, and 1995.
3) Global participation:
With the exception of Russia (ERUS) and Saudi Arabia (KSA), every country ETF is positive in 2017 with a median return of 16.4%. 15 countries are up more than 20% year-to-date.
All-time highs have been a global affair, with new highs registered last week in the U.S. (SPY), Japan (EWJ), Belgium (EWK), Ireland (EIRL), Germany (EWG), Switzerland (EWL), Sweden (EWD), France (EWQ), Hong Kong (EWH), Netherlands (EWN), and South Korea (EWY).
4) Both stocks and bonds rising:
With 10-year yields falling, bonds (AGG) are up a respectable 2.7% year-to-date.
5) Economy expanding:
The Atlanta Fed is projecting 3.4% real GDP growth in the second quarter.
At the end of June, the expansion will hit 96 months in duration, the 3rd longest on record.
6) Earnings Growing:
With 97% of companies reported, second quarter earnings are up 27%/21% (As-Reported/Operating) over the prior year.
Sales growth of 6.9% will be the best since the 4th quarter of 2011.
7) Easy Central Banks
While expected to hike twice more in 2017, the Federal Reserve is still maintaining an easy monetary policy. Every developed country central bank has negative real interest rates.
Is this as good as it gets?
I don’t know, but for investors it’s pretty darn close. The challenge, as we know from history, is that just because something is really good doesn’t mean the next stage has to be really bad. If it were, the game would be easy. You would just sell everything today and wait until everything is really bad next month to buy everything back at a lower price.
But that’s not how the market works. Most of the time, really good environments continue to be good for some time and even when they’re less good, they’re still ok. And importantly, investors can still make money in the transition from really good to ok.
While the best investing opportunities invariably present themselves during bad times, there are (thankfully) many more good times than bad times. Which is why it can be nearly as challenging for investors to stay invested during good times as it is during bad times. We have a hard time accepting that good can continue to be good just as we have a hard time accepting that bad will not be bad forever.
Eight years have now passed since the expansion began in June 2009. Each June since has been increasingly challenging for investors to hold on. The litany of reasons to sell grows with each passing year as does the fear of giving back your hard-earned gains.
As good as it gets? Maybe. But that doesn’t mean it’s easy.
Siento el mensaje machacón de que esto corrige, pero es todo lo que leo. Sin embargo, siempre dudo que sea amplio. Es un problema de alternativas, que no hay. Con una masa enorme de depósitos bancarios sin rentabilidad, que va a ser así durante muchos años (lo de la rentabilidad cero), la alternativa que tienen los inversores es tomar algo de riesgo y eso le da colchón a los mercados ante posibles bajadas… Aquí y en todas partes. Abrazos,
PD1: Mientras, en España nos dedicamos a meternos en + problemas quebrando un banco y en preguntarle a los catalanes esto: "¿Está usted de acuerdo con un Estado independiente en forma de República?". Van a conseguir lo que se proponen y luego dirán que era irremediable… Luego tendremos el mismo síndrome de cuando perdimos Cuba y Filipinas.
¿No sería mejor hacer cosas más útiles? ¿Para qué sirven los políticos y las autoridades? ¿No pueden hacer mejor las cosas? ¿No sería mejor hacer algo de una puñetera vez? Qué pena!!!
PD2: Hoy es el día de los NO. No juzgar a nadie, no hablar mal de nadie, no pensar mal de nadie, no criticar a nadie, no reprochar nada a nadie, no frivolear, no pensar que somos mejores que los demás… Y algún SI: querer mucho más a los otros.