Recent market weakness is causing concern for many. Are we seeing the beginning of the dreaded double dip in equity prices that has been widely predicted by the popular media since the “meltdown” of 2008-2009?
But before we get emotionally involved and make financial mistakes we must first gain perspective. From March 2009 many equity markets around the world have doubled in value. This happened in a relatively short time frame. It must not become the expectation for the way things will be going forward. Equity markets just don’t double every two years. That’s not normal. And there will always be setbacks from time to time.
The weakness that began in the spring of 2011 must be looked at as another opportunity to pick up bargains in the equity market. We are not even going to talk about the extra special bargains that existed in March 2009. It would be just too painful.
But let’s look back at what happened between spring 2009 and today. Yes we witnessed an almost doubling in equity values. But this did not happen in a straight line. There were no less than four occasions when the media had an opportunity to stress us about the double dip in equities. They happened between June and July 2009, January and February 2010, April and July 2010 and we are in one right now.
Currently equities are down about 5 to 6% from April depending on which side of the border you are looking. However, in the time frames mentioned above, equities were down as much as 16% in the US and 8.5% in Canada. So at 5 or 6% there could still be room for more weakness, and as we like to point out, opportunity for bargain hunters.
“Faith in our system” is the take away from this short essay. No doubt the system is not perfect but it’s the best we have to work with. And work with it we must. A recent report from the Standard & Poor’s, Bureau of Economic Analysis shows us that US corporate profits are recovering and out pacing the economic recovery by more than twelve times. This is the widest margin it’s been in over 60 years. Corporate America is alive and well, yet this fact is not being recognized in equity prices.
Furthermore, there is a mountain of liquidity sitting on the sidelines in the US. Currently US households are hoarding $7.9 trillion in cash equivalents and there is another $2.3 trillion in business liquid assets. This money is going to find a new home some time in the future and if it works its way into the equity market then we haven’t seen anything yet.
Stop worrying about politics and the macro economy. Other than discussion at cocktail parties there is nothing an individual can do to impact these issues. Focus on business ownership and their ability to create wealth. Understand how companies make money and reward shareholders. Realize that equity ownership has historically provided the highest return on investment over time and have faith that this trend will continue.
If you are having trouble making a decision on your own then you should seek the services of an advisor. The advisor’s role is to coach you to remove the emotional side of your decision making and create sound financial strategies that are designed to meet your short- and long-term financial goals.
The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail email@example.com. Mutual Funds provided through FundEX Investments Inc.