When my kids were young, they liked to put their helium balloons in a grey packing tub and try to hold all the balloons down with their outstretched arms. If they moved just a little, one or two balloons would spring back up. It feels a little like that now in the market, like someone is trying to hold down the market to keep it from rising.
There seems to be a lot of investor nervousness. Though I have only received one call from my own clients, I have received numerous calls from nervous investors who invest elsewhere. My view is that while policy changes, even abrupt ones, can slow market growth, they will not stop the market from growing.
The companies we are investing in have talented people who provide the world with quality products and services that consumers will continue to pay for. This will lead the market to continue to grow in value despite short-term economic conditions because of our resilient economy and continued innovation.
Here are two reasons why I feel so strongly about the market’s future.
- Not even the COVID shutdown could hold this economy down. The earnings per share of the top five hundred companies (S&P 500) have increased over every 10-year period since WWII, including the COVID shutdown. It’s hard to imagine, without having lived through it, just how big of a deal it was for the entire world’s economy to stop working and producing. Yet that happened, and we have all witnessed the economy make a cold start and run as hard as ever. This time of trade wars isn’t the size of a fly on an elephants butt compared to the shutdown in 2020. Since WWII, the stock market has risen despite going through twelve recessions and several geopolitical shocks, and will continue to do so through this one.
- Innovation continues despite volatility. Government policies might sometimes hinder the creation of new profitable ideas or products, but they are never stopped. For example, during the difficult days following the Smoot-Hawley Tariff Act in 1930, when the US raised the average tariff to 20%, great new products continued to be developed and sold around the world. During that trade war, the radio was created, and sales doubled. Another example is that the building of US airplanes and advancements in aviation technology during this time were so popular that airplane exports rose over 40-fold in the 1930s, even though tariffs were in the news and heavy on the hearts of investors. The invention of the radio and commercial flights were just as big in those days as the cell phone and internet were just a few years ago. The current innovation, AI, could be just as big. The radio, airplane, cell phone, and internet changed how life was lived; AI might too, despite a trade war being waged. I believe the AI buildout and the construction of data centers to support AI computing will thrive during this current economic and political volatility.
While investor nervousness will continue, I continue to believe that investing with a long-term view and focusing on fundamentals and innovation will help investors reach their goals. It probably wouldn’t hurt to also ignore the headlines for a while. My confidence comes from having a proven process that is flexible to adapt to the changing market environment. If you have a good investment plan, you should be confident in your portfolio positioning.
Whenever my kids stopped holding down the balloons, the balloons that had enough helium would bounce back up. I won’t get into whether President Trump’s actions will be good or bad, but I know they can only be judged in the long term. A huge encouragement for me is that every time he backs off his pressure, the market bounces up. That tells me the economy has a lot of gas left in the tank.
Have a blessed week!
Securities and advisory services are offered through LPL Financial, a registered investment advisor and member of FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that the strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
