Don’t be afraid of a market pull back. This October 19 marked the 30-year anniversary of the great crash of 1987. The Dow Jones Industrial Average fell over 20% that day and still holds the record for the largest percentage drop in a single day. Robert Shiller, the Nobel Laureate for economics, writes that for long-term investors who did not join the panic, “The market began rising later that week, and in retrospect, stock charts show that buy and hold investors did splendidly if they stuck to their strategies.” (New York Times, 10/22/2017) Shiller concludes that “The 1987 stock market fall was caused by fear and based on rumors, not on real danger.”
People ask me if I think the market is too high, and if I am worried about a correction. I do not think the market is too high, and I would like to see some kind of correction before year-end. A correction would not change my long-term investment strategy, and it should not change yours. Corrections are important because they keep market growth sustainable. Markets are defined by ebb and flow. Corrections occur on average once per year, and even when the market declines more than 20%, it recovers and goes higher. This was true in 1987, 2000, and in 2008/2009. Dr. Shiller makes an excellent case for long-term investing and against market-timing, which I define as going to cash when you succumb to ungrounded fear and rumor. Don’t be afraid of a market pull back.
Let’s Ask Canada
Bonnie and I visited Vancouver, BC (my birthplace) in October to catch up with several cousins. While we were there, the Vancouver Sun ran an article that began, “Skepticism in global equity markets is getting expensive.” From Japan to Brazil to America to Greece and Ukraine, stocks are defying naysayers and rewarding investors. Heeding concerns about stretched valuations and policy uncertainties in Washington and Brussels has been a mistake. In the context of low inflation and low interest rates, growth in corporate earnings justifies growth in market prices.
Technology
Technology is the place to be for 2017. Our best performing funds in October and for 2017 so far all have an overweight to technology. Nine of the eleven sectors that cover the U.S. stock market are positive for 2017; only two sectors are negative: energy and telecommunications. Our Stable Growth accounts continue to produce positive returns with lower risk allocations from our Class 4 Total Return Funds and Class 5 Fixed Income Funds. The bond market was steady in October with not much movement in interest rates, and with the Fed announcement November 1 that they are holding off on interest rate increases, we expect this steadiness to continue.