Giving Thanks for Stocks’ Resiliency

We have much to be thankful for indeed. Photo by Chris Wong.

Here is a thought exercise: Imagine yourself a year ago, Thanksgiving week 2016. If I gave you a list of real headlines from 2017, would you have said stocks were higher or lower overall by Thanksgiving week 2017? I’m guessing many folks would say “lower.” Yet we know reality: Global stocks are up 19% year-to-date and 21.8% since Thanksgiving Day 2016.^[i] In my view, this is a keen reminder of stocks’ ability to look past the noise and price in reality far better than any one person can—something investors can give thanks for this year.

Here is a non-comprehensive list of major headlines from 2017:

• Trump Abandons Trans-Pacific Partnership, Obama’s Signature Trade Deal
• This Is the Election That Will Test the Foundations of the French Republic
• Theresa May Loses Her Election Gamble
• Stocks Deflate as Wall Street Digests Fallout of Comey Testimony
• North Korea Successfully Tests Missile That Experts Say Could Hit Alaska 
• ECB’s Inaction Echoes Global Caution Over Weak Inflation
• A Slump in Tech Stocks That Leaves Some Investors Mystified  
• Barcelona Attack Is Worst in a Day of Violence in Spain
• The Las Vegas Attack Is the Deadliest Mass Shooting in Modern US History
• 26 Dead, 20 Injured in Massacre at Rural Texas Church in Worst Mass Shooting in State’s History
• Hurricane Harvey Could Cost $190 Billion, Be Worst-Ever US Natural Disaster, Says AccuWeather
• Mario Draghi Needs to Avoid a ‘Taper Tantrum’ When the ECB Meets
• Fed’s Balance-Sheet Unwind Will Be Moment of Truth for Financial Markets
• Angela Merkel’s Stumble in the German Election Has Big Implications
• Spain to Trigger Direct Rule on Catalonia to Crush Independence Bid
• Deadly Fires Sweep Portugal and Northern Spain
• California Wildfires Are Officially the Worst in History With 36 People Dead
• Mattel Reveals Dad Bod and Man-Bun Ken Dolls^[ii]

Again, this is a non-comprehensive list—plenty of other impactful political, economic and sociological stories have dominated the news cycle at various points this year. My point: Stocks and investors have dealt with a lot of noise in 2017.

And yet, global equity markets are up nicely this year. There are some fun (albeit arbitrary) stats to go along with this rise, from low volatility across the world to 12 straight months of positive returns. Naturally, many folks have worried this signals stock complacency, setting up an inevitable market pullback or worse. While that sense is becoming less common—more investors are tuning in to the bull and growing optimistic—some still worry markets are just wrong to be rising. In my view, that sentiment is a sign of the persistent dour attitude common throughout this bull market—one Fisher Investments’ Founder and Executive Chairman Ken Fisher has called “history’s most joyless.” And while tracking volatility or random streaks makes for nice financial media fodder, investors should always remember not to get too hung up on past performance because it indicates nothing about the future. More important: The bull market has charged higher, and it looks likely to continue doing so for the foreseeable future. 

For investors, this is a vivid reminder of how stocks can surge even in a very imperfect world. I’m not arguing this year’s biggest news stories don’t matter or have no effect on people’s lives. Policy choices matter. Election results matter. Damaged and lost lives, whether due to natural or manmade tragedies, matter. But as an investor, you must refrain from letting emotional impulses—whether it’s fear, anger, greed or something else—influence your investment decisions. Stocks care most about drivers affecting investor demand over the next 3 - 30 months—and those primarily involve global economic conditions, the political environment and broad sentiment. Crucially, when I typed the words “the political environment,” I didn’t mean rancorous debate. I mean actual action impacting stocks—passage of a law, regulatory change, large-scale (WWII-ish) military conflict. Things like that. While specific securities may react short term to the ebb and flow of smaller stories, the market as a whole likely shrugs. That sounds callous, but markets don’t care about feelings. When it comes to your portfolio, I suggest embracing that attitude, too.

To end on a more optimistic note, remember also that stocks reflect the resilience of the human spirit. Following the news can be a debilitating, soul-crushing experience. After all, broadcasts don’t typically lead by covering the vast majority of folks who had a fine day yesterday or whose biggest harangue was bumper-to-bumper traffic. They don’t typically note or cover the good things ordinary people do—volunteering, donating to charity or providing a product or service other people value. Rather than markets being complacent or callous, maybe they just see the bigger truth that our negative-biased media misses: That while there are negatives in the world today, the positives are simply much bigger and stronger. Maybe stocks’ resiliency is merely a reminder that, despite headlines prevalent most of the year, we really do have a lot to be thankful for.

[i] Source: FactSet, as of 11/20/2017. MSCI World Index  with net dividends, 12/30/2016 – 11/21/2017 and 11/24/2016 – 11/21/2017. 

[ii] This is a real headline, though clearly not as important as the other stories. Just wanted to make sure you’re paying attention.