By The Numbers January 2019
1. INVEST FOR THREE-YEARS – Since 1926, 84% of the rolling 3-year periods for the S&P 500 index (i.e., the 91 separate 3-years beginning 1926-28, then 1927-29, . . . 2016-18) have produced a positive return. The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the index proportionate to its market value(source: BTN Research).
2. MAJORITY OF THE TIME – Of the 10 bear markets for the S&P 500 index that have occurred since the end of WWII (i.e., declines of at least 20%), 7 took place concurrently with a recession (source: BTN Research).
3. YOU NEVER KNOW – Financial reporter Adam Shell retired from his position with USA Today last week (1/08/19) after 19 years with the paper. Shell is famous for his 10/10/02 article titled “Where’s the bottom? No end in sight” that began with the sentence “The worst bear market since the Great Depression just keeps getting worse.” In fact, the S&P 500 had closed at a bear market bottom the previous night (10/09/02) at 777 and then proceeded to climb +102% over the next 5 years before peaking at 1565 on 10/09/07 (source: USA Today).
4. GOING UP – Earnings per share of companies in the S&P 500 are projected to increase +8% in 2019. Actual earnings per share increased +20.5% in 2018 (source: FactSet).
5. OVER THERE – The international stock index EAFE has been negative in 5 of the last 11 years, including a 13.8% drop (total return) in 2018. The EAFE is an unmanaged index that is generally considered representative of the international stock market. These international securities involve additional risks including currency fluctuations, differing financial accounting standards and possible political and economic volatility (source: BTN Research).
6. WHO IS THE NEW BUYER? – The Federal Reserve’s plan from 9/20/17 began the unwinding of “Quantitative Easing” (and shrinking of the Fed’s balance sheet) by having bonds mature without reinvesting the principal into new bonds. “Quantitative Shrinking” has resulted in $355.5 billion of bonds roll off the Fed’s balance sheet during 2018, an average of nearly $7 billion a week (source: Federal Reserve)
7. COMPLETE YOUR TAXES NOW – As a result of the December 2017 “Tax Cuts and Jobs Act,” 65% of US taxpayers will pay less in taxes for tax year 2018 than they did in tax year 2017, 6% will pay more and the remaining 29% will experience no material change up or down (source: Tax Policy Center).
8. DIFFERENT TARGET PRICES – The break-even price of oil for Saudi Arabia to balance their sovereign budget is $88 a barrel. The break-even price for Russia is $53 a barrel. The break-even price for oil produced in the Permian Basis is $50 a barrel. The price of oil closed at $51.91 a barrel last Friday 1/11/19 (source: International Monetary Fund, Federal Reserve Bank of Dallas).
9. THREE – If the nation’s GDP growth for 2018 that will be reported on 1/30/19 shows an increase of at least +3% for last year, it will end a record streak of 12 consecutive years of “sub+3%” growth (2006-2017). The next longest streak in history of“sub +3%” growth is the 4 years from 1930-1933 (source: Commerce Department).
10. JUST DO SOMETHING – In a 326-page document released on12/13/18 titled “Options for Reducing the Deficit: 2019 to 2028,”, the Congressional Budget Office suggests 38 ideas to reduce mandatory spending, 34 ideas to reduce discretionary spending and40 ideas to increase revenue (source: Congressional Budget Office).
11. CARS – Americans purchased 17.3 million new cars and light trucks in 2018, a record 4th consecutive year above 17 million in sales. The low point for sales in the last 2 decades – 10.4 million sales in 2009 (source: Autodata).
12. BE PATIENT – Individuals who receive a referral from a general practitioner wait on average 5 months before receiving treatment from a specialist under Canada’s publicly funded health-care system(source: Fraser Institute).
13. WANTED: MORE BABIES – The “total fertility rate” (TFR) of US women in 2017, defined as the expected number of lifetime births per 1,000 women given current birth rates, was 1,765.5, the lowest number reported since 1978 (1,760.0). A TFR of 2,100.0 is considered the level for a population to replace itself (source: CDC).
14. GREEN – There are 98 freshman legislators in the new 116thCongress (out of 535 lawmakers). 58 of the 98 first-time politicians(59%) did not have any prior political experience, e.g., they never served as a state legislator, a state attorney general, a mayor of a city or as a member of a city council (source: The BrookingsInstitution).
15. JOIN A TEAM SPORT – Harvard University offers 42 varsity sports for its student-athletes, more than any other NCAA Division I college in the United States, including the sports of sailing and snow skiing. Ironically, Harvard does not offer athletic scholarships (source: Harvard University).