In this seemingly ever more divided and ever more electronic age, “perspective” is not a word (or action) that gets mentioned (or employed) with as much frequency as it used to. The default approach for a lot of things appears to be:
a) Decide ones opinion
b) Take to the internet to shout categorically that said opinion is the only possible “correct” opinion
c) Excoriate anyone who disagrees
Well, sure that is one approach. But when it comes to investing it is fairly important to raise one’s head and take a look around every once in awhile.
Hey, how about now?
(See also One Answer to the Large-Cap/Small-Cap Argument)
The U.S. Stock Market Post Election
Since the election in November the U.S. stock market has been on a quite a tear, with the major market averages breaking out to new all-time highs as seen in Figure 1.
Figure 1 – Major market U.S. averages breakout to new highs (Courtesy AIQ TradingExpert)
Now per a, b and c above, some will argue that this is a testament to the booming economy that #44 is leaving #45 while others will argue that it is a sign of new hope for the U.S. economy under a new adminstration.
My response: Whatever
Don’t get me wrong, I am all for a bull market. I hung in there all year despite a lot of doubts mostly because my trend-following indicators just kept staying bullish. And they remain thus. But like I said before a little perspective can sometimes go a long way.
A New (Republican) Administration
The historical fact is that the last 3 Republican administrations that followed Democratic administrations (Nixon, Reagan, Bush 43) did not experience great “stock market joy” during their first two years in office. Specifically, the first 21 months of the new four-year election cycle (i.e., starting on Dec. 31st of the election year through the end of September of the mid-term year) for each of these prior administrations witnessed a fair amount of “pain.”
Peruse Figures 2, 3 and 4 (which displays the % gain or loss for the Dow Jones Industrials Average for 21 months starting on December 31st of the election year) and see if you notice a trend.
Figure 2 – Dow % +(-); Dec-1968 thru Sep-1970 (Nixon – 1st 21 months)
Figure 3 – Dow % +(-); Dec-1980 thru Sep-1982 (Reagan – 1st 21 months)
Figure 4 – Dow % +(-); Dec-2000 thru Sep-2002 (Bush 43 – 1st 21 months)
The Good News is that there is no reason why this history has to repeat itself this time around. The Bad News is….that it very well could.
The Current Euphoria
As I stated earlier, when it comes to bull markets, I vote “YES”. I will take one anytime I can get it. And I also try to avoid being one of those “know it all types” (in the interest of full disclosure I am actually more one of those “sneaky” types who tries to intimate that he actually does know it all by trying not to act like a know it all – which is technically probably worse. But, hey, at least now you know) who routinely “talks down” a bull market (“Oh sure, things are great now but just you wait….” And so on). That “just you wait” stuff gets really old after a short while.
So here we stand. The major U.S. averages are bursting forth to new highs – so who am I to be a naysayer? Still, there is that pesky “perceptive” thing I mentioned earlier. Before getting too carried away with bullish euphoria please sear Figures 2, 3 and 4 above somewhere into the back of your brain – just in case.
Also note that the U.S. stock market is virtually alone in the world in terms of making new highs. Figure 5 displays:
Ticker VTI – Vanguard Total (U.S.) Stock Market ETF
Ticker VEU – Vanguard All World ex-U.S. Stock Market ETF
To be clear, ticker VTI essentially covers the entire U.S. stock market. Ticker VEU covers a broad array of major world stock markets BUT does not include U.S. stocks.
Figure 5 – U.S. Total Stock Market = New Highs; World Total Stock Market = NOT New Highs (Courtesy AIQ TradingExpert)
Note that the U.S. market has broken out strongly to new highs while the “whole world” of markets is nowhere close to doing so. Certainly one can adopt the “What, me worry?” approach and argue that “the U.S. market will lead the other world markets to reach new highs.” And maybe that will prove to be the case.
But as I will highlight soon – and as reflected by tickers VTI and VEU – the U.S. stock market looks great while virtually the rest of the markets around the globe look pretty not so great. So please check back for Part II soon
In the meantime, enjoy the rally and the Holidays – I know I will.
Jay Kaeppel
Good stuff… Thanks Jay!
Interesting perspective!