A Tin Star for the Market

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by Timothy D. Carkin
Senior Vice President

On Saturday, March 9, we mark the 10th anniversary of the stock market bottom that started the great bull market we’re now experiencing. Traditionally, tin is the gift given on a 10th anniversary. So in lieu of a gold star, the equity markets deserve a tin star for impressively running up 400 percent since that bottom.

Time can do a lot to white-wash bad memories and it’s good to reflect and remember to put things in perspective. Rewinding back to the market bottom: we were in the midst of a global financial crisis and capital markets were cut in half from peak to trough. During that period, the sub-prime mortgage crisis came to a head, the housing market crashed, the economy fell into recession and Lehman Brothers and other financial institutions failed. Nearly all major asset classes, save bonds, dropped in unison as the dark cloud of the financial crisis loomed. The market went from euphoria to despair in less than two years.

Source: FactSet

Source: FactSet

From that low, the clouds lifted. It took a little over two years for the markets to recover to prior highs. Now, the skies are clear and as recent as six months ago, the markets set new highs in this decade-long bull market.

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Source: FactSet

The Worst Week This Year

Fast forward to the present and this week was the worst of 2019 for equity markets, dropping 2.6 percent after running up more than 11 percent. The same resistance level that we’ve hit three times since October stymied the rally. It’s normal for the markets to pull back or consolidate after a quick run up like we’ve experienced. We are watching for clouds on the horizon for signs it is anything different.

January and February tend to be good months for the market. But when they are both up, historically, equity market returns are above average the remainder of the year. The below chart shows that 25 of the 27 times this has happened since 1950, the S&P 500 was positive for the remainder of the year. Further, it shows the average pullback over that period is roughly 9 percent. It’s too early to tell if we are currently in that substantial pullback or if the market is just consolidating and catching its breath.

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Source: Strategas

Week in Review and Our Takeaways

  • The U.S. added 20,000 jobs added in February, well below expectations. Conversely, hourly wage growth hit 3.4 percent, the best reading since 2009

  • A strong January and February has historically been good for yearly returns