The market rally that greeted us in the New Year has hit a speed bump. Now we are down one week and up the next. So is the rally over and another downturn around the corner, or is the rally just getting started? In other words, which way do we go from here?
This is always the question, isn’t it? There is an old saying: put 10 market analysts in a room and you will get 12 opinions. The data can be made to look any way one wishes at the moment, starting with GDP. The fourth quarter of 2018 came in with growth of 2.6 percent. That was higher than expected and gave us the roughly 3 percent annual growth for 2018 that the administration’s economic team promised. They say this proves that the “new normal” of 2 percent growth – which we were told by the previous administration was as good as it gets – was, in fact, not as good as we can do. We can bring America back to its historic growth rates.
The other guys (there are always other guys) say this is just a sugar high and economic growth will come crashing down now that we are back to reality. The market took the news of 2.6 percent growth positively, for what that is worth; until the unemployment report came out. The unemployment rate dropped to 3.8 percent, but according to the report, the economy created only 20,000 new jobs. That last number is not good at all. The naysayers had a field day with that. Look how bad the employment situation is, we are only creating 20,000 jobs that is horrible. The other side of that is that we have extended the longest period of sub-4 percent unemployment since the 1960s. Wages are also growing faster than inflation; more importantly, in my opinion: wages are growing faster at the lower rungs of the economic ladder. That means inequality is decreasing, but I wouldn’t hold my breath waiting to hear that from the naysaying crowd. The market reacted poorly to the unemployment report, for what that is worth.
Then we got some better-than-expected news from retailers. Do you see the pattern? Good news, not-so-good news, and news that could be taken either way. It is really in the eye of the beholder. So, where is the market going? 
To tell you the truth, I don’t have a clue. I hope that doesn’t bother you, but in case it does, let me explain.
First of all, none of these prognosticators has a clue; I’m just willing to admit that I don’t have a clue. Secondly, and more importantly, this is why we believe so strongly in investing from the bottom-up. I don’t need to know what retail sales numbers will be to know that Amazon is a winner, even if New York doesn’t want them. I don’t need to know the exact future of healthcare to know that United Healthcare is the best of the breed. You see, it is far easier to understand a company’s business and the potential for that business than it is to guess what will happen in the market next week.
Prudent investing is done from the bottom-up, and from what we can see there are still many attractive opportunities in the marketplace. Based on that knowledge I am optimistic about the future. Here is another thing I know: No matter where the market goes, it will not travel in a straight line. Every day or week the market is down, the financial media will find some pessimist predicting the end of the world as we know it. Every day or week the market is up, the same networks will find an optimist who will say that the market is headed for heights never seen.
In the meantime, real investors seek out opportunities one by one. Some may find it boring, but it works, and that is what matters to prudent investors. So let the pundits fight it out, we’ll just quietly do our job.
Warm regards,
Chuck Osborne, CFA
Managing Director
