Financial Industry Insights from Advisors Asset Management


AAM Viewpoints – The Great Wall of Worry

January’s price return for the S&P 500 came in at 7.87%, the best monthly return in over three years and the best January in over 30 years. Last year also started strong with the S&P 500 appreciating 5.72% in the first month which is well above its long-term-average of a monthly gain of 1.12%. Bookended by these two phenomenal returns was 11 months of saw-toothed action, including four negative months and December’s tumble of 9.18% which was the worst month for the S&P 500 in almost 10 years. In addition, from 9/20/2018 – 12/24/2018 the S&P 500 lost 19.78%.

Given this, one might ask what is causing all these historic and volatile returns to come in such a short period? As always, we believe the markets are inundated and affected by a multitude of concerns that collectively become “The Wall of Worry.” Now, given the sources and the number of these concerns, we prefer the moniker “The Great Wall of Worry.” We believe it is these factors that have caused the volatile and outsized returns (both positive and negative).

One issue on investors’ minds is longevity. Specifically, with the current bull market and economic expansion approximately 10 years old many believe that a good bet would be that both will be ending soon. Based on history, it appears both bear markets and recessions (except maybe in Australia) are inevitable, however, we don’t believe investors who focus on clocks and calendars will be rewarded long term. Instead, we believe they would be better served to stress the fundamentals, which to us still look very supportive of continued economic global growth and solid equity returns. To oversimplify – and we think that is appropriate given today’s deluge of too much information too fast – we follow employment and corporate earnings trends very closely and both are still very robust and showing no signs of impending large-scale declines.

Investors also have on their minds interest rates and the on-again off-again government shutdown. The latter is most likely about to once again become a headline and partisan fodder, but we don’t believe it will have a lasting impact on economic growth and equity returns. However, the good news is the language out of the FOMC (Federal Open Market Committee) has become much more dovish since their December rate hike. We believe this has removed a large dark cloud from the investing horizon as the odds for another rate hike in 2019 are now well below 10%, and some are even speculating a rate cut is just as likely as a hike.

However, the primary bricks in this “Great Wall of Worry” now have to do with China – currently the 2nd largest economy on the globe. Specifically, the slowdown in the Chinese economy and the ongoing trade tensions with the United States are the two big concerns. If these two don’t get the lion’s share of the financial headlines over the near term they should get the lion’s share of your attention. In 2018 the Chinese economy grew 6.6% year over year, its slowest pace since 1990. However, it is important to note that given the current size of the Chinese economy (~$13.5 trillion, over 30 times larger than in 1990) China will most likely not post consistent record growth in the near term despite active fiscal and monetary policy initiatives. The wild card is the ongoing trade talks between the United States and China. We don’t want to be too much of a Pollyanna, and though we do expect some bumps and bruises through the negotiations, we do think there will be a meaningful resolution. The #1 and #2 economies in the world have too much at stake to not come to terms. Though it doesn’t appear to be the case currently both governments clearly understand that only synergy between the two will continue to drive global economic growth.

The markets have been extremely trying over the last 13 months and that has left many investors frustrated and concerned. We continue to emphasize that investors need to stay patient, diversified and invested. We are all inundated with calls of market tops and bottoms in the media, but as always, we like to emphasize to investors that it is extremely hard to accurately make one of these calls, let alone two in a row. This has driven our long-espoused thesis that investors need to dollar cost average and buy the dips when they occur. Many investors delay this as they believe they can accurately call exact market bottoms. With that in mind, this recent Bloomberg headline (1/14/2019), “Howard Marks Says Investors Should Try to Catch Falling Knives” really hit home for us. In a nutshell, Marks outlines that investors should stop waiting for what they perceive to be the perfect time to buy as it doesn’t exist and instead buy when assets are on sale. We agree 100%.


CRN: 2019-0201-7223R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit



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