From Investing FOMO to FEAR

By February 14, 20192019, Money Moxie, Newsletter

My daily commute often leaves me sitting in traffic on State Street in Salt Lake City. Sometimes it can take 10 minutes to move 3 blocks. During these seemingly hopeless times, I often see a cyclist pass me. I consider the wisdom of selling my car and riding my bike. However, no matter how bad the traffic, I eventually pass the biker–no exception. (As a biking enthusiast, I regularly commute on a bike, but it is not faster.)

As investors, we faced similar thoughts in 2018. Should we make a short-term decision even though we know which vehicle will get us where we want to go quicker?

Investors entered 2018 with a Fear Of Missing Out (FOMO). The stock market had just completed a year where every month was positive. A tax cut had just been passed to stimulate greater consumer and corporate spending. Around the world, growth seemed synchronized, and expectations were rising.

Here is a review of my three predictions for 2018 with commentary on how things turned out.

U.S. growth exceeds 3 percent. The impact of the tax cut, which I referred to as a “sugar rush,” temporarily lifted U.S. growth to make the first forecast correct. The benefits of the cut were so short-lived that investor excitement quickly turned to concern.

The Federal Reserve finally has an impact. Interest rate increases by the Federal Reserve in recent years had largely been ignored by the stock market. This prediction also came true, especially in December when a rate increase was done despite all the problems going on in financial markets.

Investors would be disappointed with the market, but positive economic growth would help the market end the year positive. This prediction seemed to be correct for much of the year. However, it failed in the part that mattered most.

The stock market ended 2018 in an absolute panic! Oil prices were plummeting. The White House could not get a deal done on trade with China. The federal government had its third shutdown in just one year. And, despite all this, the Federal Reserve raised interest rates stating that nothing had changed; the economy was strong.

The stock market sell-off intensified, and the bull market arguably came to an end on Christmas Eve. December performance of the S&P 500 stocks was the worst since 1931. Historically, that makes some sense. The Great Depression began in 1929.

But we were not in the midst of a depression — quite the opposite. Corporate earnings were at record levels. The real GDP growth in this country was around 3 percent. Consumer spending, which represents 70 percent of the U.S. economy, rose in December by 4.5 percent!

What is an investor to do when the economic data is positive, and the market is so negative? At times like this, it is critically important to stay focused on your long-term goals.

It is our job at SFS to help you develop these goals and keep you on track to achieve them. We have tools to provide the necessary clarity and strategies to implement to help you keep moving forward.

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