Fisher Investments Quarterly Reviews
Each quarter, Fisher Investments publishes a Quarterly Review with valuable insights on recent market, economic, and geopolitical conditions, as well as a forward-looking view on where we believe markets are headed in the coming months. Below are excerpts from the most recent quarter, as well as the prior three quarters.
If you are interested in reading the full version of the most recent quarterly review, click here.
(originally published 11/9/2016)
After shrugging off Brexit and other political theatrics to rise 4.9% in Q3 2016, global stocks took a step back in October, falling -1.9% amid campaign trail tumult.1 Yet markets’ pre-election wobbliness doesn’t change stocks’ longer-term drivers. Uncertainty has been falling throughout the year, and more clarity comes in Q4 and beyond—and with it, we expect the bull market to grind higher.
Much of the uncertainty fog that triggered the stock market correction early this year has cleared. (A stock market correction is a short, sharp, sentiment-driven decline exceeding -10%.) While some may not be happy with the outcome, the next US president and Congress are now known. Brexit doom-mongering lost all credibility as UK stocks soared post-referendum and most economic data rose. Chinese markets calmed and the economy remained steady. Most US indicators defied recession fears. Oil prices stabilized. Earnings expectations improved as analysts anticipated better times in the oil patch on top of non-Energy earnings’ overlooked strength. Volatility or another correction is always possible—such moves are random and
unpredictable sentiment swings—but a bear market seems unlikely. (A bear market is a
prolonged period of fundamentally driven market declines exceeding -20%.) Sharp short-term
swings are commonplace in bull markets, and we believe investors needing equity-like results
are best served to remain steadfastly focused on their longer-term needs.
Uncertainty should lift further from here—helping fuel the bull market. President-Elect Donald Trump will now begin building a cabinet and prepare to take office in late January. Uncertainty over Trump’s potential policy direction should gradually clear in the coming months, as will the areas for potential compromise legislation—if any. It is highly likely many of President-Elect Trump’s promises will fall by the wayside after inauguration. Campaign-trail talk is always cheap, and Trump likely faces opposition both from Democrats in Congress and the
#NeverTrump contingent in his own party. Since Trump ran on a relatively anti-business
platform, a less-active legislative agenda should positively surprise investors. Elsewhere, Italy holds a key vote later in December, clarifying Prime Minister Matteo Renzi’s future. At some point the Fed will hike rates again, ending the waiting game and giving investors another chance to realize minor rate moves are benign.
While fundamental drivers point positively, this may be history’s most joyless bull market. Eight years into the 1990s bull, cheerful optimism abounded, consistent with Sir John Templeton’s oft-quoted truism: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Now, in this bull’s eighth year, it’s like a gear was stripped. We’re stuck in skepticism, grinding away. This has lengthened the bull market, but also weighed on returns.
1 Source: FactSet, as of 11/7/2016. MSCI World Index return with net dividends, 6/30/2016 – 9/30/2016 and 9/30/2016 – 10/31/2016.
3Q 2016 Fisher Investments Quarterly Review
(originally published 7/27/2016)
Q2’s finale didn’t lack drama, yet for all the wildness, global markets rose 1.0% in the quarter.1 While there may be volatility—both up and down—along the way, we expect stocks to reward patient investors in 2016’s second half.
Many pundits bemoan “flat” market returns since mid-2015, suggesting the seven-year old bull market is running out of steam. However, no bull market in history has died of old age or
because it lacked momentum. This line of thinking is dangerous for investors—past returns and
market direction are never predictive—flat market returns recently don’t foretell future flatness. Besides, the flatness pundits bemoan is actually just the impact of 2015 and early 2016’s correction, a not-uncommon occurrence historically. Since 1930, the S&P 500 has had nine flat
periods exceeding 300 days during bull markets (including the present).2 Eight of them included corrections.
Sudden, unforeseeable dips and corrections (short, sharp, sentiment-driven dips exceeding
-10%)—are routine in bull markets. Several have come and gone in this expansion, rewarding
those who stayed cool or bought while stocks wobbled. Early 2016’s downdraft illustrates this
perfectly. While volatility can always come, we do not see a bear market—a fundamentally
driven, lasting decline of more than 20%—drawing near. In the absence of a bear market, we
believe those needing equity-like returns on some or all of their portfolios to reach their long termgoals should maintain equity exposure. This, not timing myopic market jumps and falls, is
the best way to capitalize on stocks’ superior long-term returns.
1 Source: FactSet, as of 6/30/2016. MSCI World Index returns with net dividends, 3/31/2016 – 6/30/2016.
2 Source: Global Financial Data, Inc., as of 4/28/2016. S&P 500 price returns, 1/2/1930 – 4/27/2016.
2Q 2016 Fisher Investments Quarterly Review
(Originally published 5/2/2016)
Global markets rallied in Q1’s second half, erasing an early-year slide to finish the quarter down just slightly. While sharp downswings like January’s are uncomfortable, strong returns in late February and March show how quickly corrections can reverse, rewarding disciplined investors. We believe stocks will keep rewarding discipline as the bull market continues this year.
2016 seems set to become the Year of Falling Uncertainty. The year began with huge uncertainty surrounding US elections, low oil prices, China, negative interest rates and the UK’s looming “Brexit” vote on staying in the EU. None are disastrous, but combined they fueled massive fear.
The year’s early downturn may be over—it will only be clear in hindsight—but another
correction later this year is always possible. Corrections (short, sharp downturns exceeding
-10%) result from sentiment’s unpredictable whims. They don’t operate on schedules, so the fact
we just had one doesn’t prevent another. In our view, the best course of action when sharp
downdrafts strike is to stay calm. It can be tempting to try to time corrections for fear they’ll fall
further, but such moves often backfire, and can jeopardize your long-term goals through missed
opportunity. We recommend reducing equity exposure only if we forecast a bear market—a
long, fundamentally driven downtrend exceeding -20%. It takes a negative surprise quashing
trillions in economic activity to drive a bear market. We don’t see a sufficiently powerful,
surprising negative lurking unnoticed to end the bull market right now.
1Q 2016 Fisher Investments Quarterly Review
(Originally published February 02, 2016)
Global markets finished Q4 up 5.5%, but early 2016 volatility renewed the correction that began last year.1 Volatility can be trying, especially as fearful headlines mount—a change from last autumn’s relative media calm. Sensational coverage of steep drops can trigger a fight-or-flight urge, but this is frequently counterproductive. We believe now is a time for steely nerves. Corrections frequently come and go fast, rebounding sharply as sentiment turns. Such rallies come without warning, and attempting to time them is folly.
While the late-year correction diminished 2015 returns, stocks still beat most other asset classes. Still, last year’s flattish returns paired with sharp volatility at 2016’s outset are trying. However, once this sentiment-driven move ends, we believe fundamentals point to continued bull market ahead. Many fret recession or weak economic growth, but reality is far brighter. Politics may seem wild—particularly in the US—but still aren’t problematic. Sentiment is too gloomy relative to reality, leaving ample room for more optimism ahead.
Presidential election years are usually positive, and historically America overwhelmingly
outperforms as Election Day nears. The global economy is growing, with America, Europe and
China healthier than most perceive. Falling oil prices are widely known, limiting their shock
value. Folks fretted the Fed finally hiking rates last December, but we like that. False fears are
bullish. The realization modestly higher short-term rates are an economic non-event, particularly
with the yield curve steep, should dispel this myth. Meanwhile, the Fed likely does ever less as
the election approaches. While the Fed portrays itself as apolitical, in reality, it’s anything but.
1 Source: FactSet, as of 1/4/2016. MSCI World Index return with net dividends, 9/30/2015 – 12/31/2015.