09 Dec Quarterly Letter to Clients – September 2019
In the first half of this year, the U.S.surpassed two significant milestones. The current economic expansion topped 10-years and Connors Investor Services, Inc. entered its 50th year as an independent investment advisory firm. (The moon landing wasn’t until July!)
The economy’s expansion is now the longest in U.S. history. One of many theories on the expansion’s longevity is that, unlike in any prior period, the economy as measured by Gross Domestic Product (GDP), has maintained a relatively modest pace of growth – averaging 2.1% per year. This restrained growth rate has been complemented by falling unemployment (achieving record lows not seen since the 1960s) and a protracted period of low and steady interest rates and inflation.
Unfortunately, these positive and consistent economic conditions are being offset by numerous other realities, both at home and abroad, which have created significant uncertainty. These factors include recent volatile China-U.S. trade relations, uncertainty around Brexit, violent acts of war happening throughout the Middle East, lack of a Federal fiscal budget, and, most recently, the impeachment inquiry. As a result, business growth is being hampered as companies deal with obstacles and uncertainty regarding trade, business forecasting, employment, and capital investment planning.
In an ironic coexistence, these uncontrollable risks become precisely the source of positive drivers of excess equity market returns over time. Equity investors with patience, fortitude and the willingness to experience market volatility and the risk of a market decline are uniquely rewarded through their capture of equity risk premium, simply defined as “the excess compensation equity investors receive for taking on risk vs. risk-free investments.” Reflecting upon this in another way, if stock markets held no risk they would deliver the same rate of return as risk free bonds. Over the last century, the historical market risk premium has averaged between 3.5 and 5.5%.
So how common are stock market corrections that help drive long-term results? Very common.
Over the last twenty years (1998-2017), the Standard and Poor’s 500 Index had at least one intra-year pullback of at least 10% in 12 of 20 years, or 60% of the time. 2018 had three of them. Gratifyingly, however, investors who “stayed the course,” holding to their longer-term investment plan through these periods, realized an average annual return of 7.2% through the same 20-year period.
While this volatility and these market declines cannot be predicted, they should be expected, as such corrections can appropriately reset investor expectations. The importance of staying invested in order to participate in market gains and remaining focused on long-term goals, both of which remain critical cornerstones of our work on your behalf, cannot be underestimated.
To this end, Connors employs a wide range of investment strategies and always welcomes the opportunity to meet with you, review your portfolio, and do the best we can to assure that your longterm investment goals remain appropriate as your life and investment objectives evolve.
It has been our pleasure to work collaboratively with you, our clients, over these past five decades. As we celebrate our anniversary, we’ll be forwarding a short series of articles chronicling the Connors story, sharing the history and heart of our firm. We hope you’ll enjoy reading them as much as we’ve enjoyed serving you these past 50 years.
Peter J. Connors, CFA
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Connors Investor Services, Inc. (“Connors”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Connors. Please remember to contact Connors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Connors is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Connors’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request .Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Connors account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Connors accounts; and, (3) a description of each comparative benchmark/index is available upon request.