Major League Baseball playoffs just started, and the struggling U.S. economy is also trying to score some more wins to make the postseason, as well. In 2008 and early 2009, the stock market looked more like The Bad News Bears, with the S&P 500 index losing 58 percent of its value from the peak to the trough. The over-leveraged (debt-laden) financial system, banged by a speculative housing bubble, swung the global economy into recession and put a large part of the economic team onto the disabled list.
Since the lows of 2009, S&P 500 stocks have skyrocketed 152 percent, including an 18 percent gain in 2013 and a 3 percent jump in September alone. With that incredible track record, one might expect a euphoric wave of investors pouring into the stock market stadium, ready to open their wallets at the financial market concession stand. Au contraire. Despite the dramatic winning streak, investors remain complacent skeptics, analyzing and critiquing every political, economic, and financial market movement and gyration.
Unfortunately, as stock prices have scored massive gains, many market followers have been too busy eating peanuts and drinking beer rather than focusing on the positive economic statistics in the scorebook such as these:
15/16 Quarters of Positive GDP Growth:
Precipitous Drop in Unemployment Claims: The lowest level since 2007 (7.5 million private sector jobs added since employment trough).
All-Time Record Corporate Profits:
Financially Healthier Consumer — Lower Debt and Higher Net Worth:
Improving Housing Market:
While you can see a lot of financial momentum is propelling Team USA, there are plenty of observers concerned more about potential slumps and injuries emanating from a lineup of uncertainties. Currently, the fair-weather fans who are sitting in the bleachers are more interested in the uncertainty surrounding a government shutdown, debt ceiling negotiations, Syrian unrest, Iranian nuclear discussions, Obamacare defunding, and an imminent tapering of the Federal Reserve’s QE bond purchasing program (see Perception vs. Reality). The fearful skepticism of the fans has manifested itself in the form of a mountain of cash ($7 trillion), which is rapidly eroding to inflation and damaging millions of retirees’ long-term goals (see chart below). The fans sitting in the bleachers are less likely to buy long-term season tickets until some of these issues are settled.
The aforementioned list of worries are but a few of the concerns that have investors biting their nails. While there certainly is a possibility the market could be thrown a curveball by one of these issues, veteran all-star investors understand there are always uncertainties, and when the current list of concerns eventually gets resolved or forgotten, you can bet there will be plenty of new knuckleballs and screwballs (i.e., new list of worries) to fret over in the coming weeks, months, and years (see Back to the Future I, II, and III). Ultimately, the vast majority of concerns fade away.
The politicians in Washington are a lot like umpires, but what our country really needs are umpires who can change and improve the rules, especially the silly, antiquated ones (see also Strangest Baseball Rules). The problem is that bad rules (not good ones) often get put in place so the umpires/politicians can keep their jobs at the expense of the country’s best interest.
When umpires (politicians) cannot agree on how to improve the rules, gridlock actually is the next best outcome (see Who Said Gridlock is Bad?). The fact of the matter is that deficits and debt/GDP ratios have declined dramatically in recent years due in part to bitter political feuds (see chart below). When responsible spending is put into action, good things happen and a stronger economic foundation can be established to cushion future crises.
There is plenty of room for improvement, but the statistics speak for themselves, which helps explain why patient fans/investors have been handsomely rewarded with a home run over the past four years. October historically has been a volatile month for the stock market, and the looming government shutdown and $16.7 trillion debt ceiling negotiations may contribute to some short-term strike-outs. However, if history proves to be a guide, stocks on average rise 4.26 percent during the last three months of the year (source: Bespoke), meaning the game may just not be over yet. With plenty of innings remaining for stocks to continue their upward trajectory, I still have ample time to grab my hot dog and malt during the seventh-inning stretch.
Wade Slome CFA CFP is president and founder of Sidoxia Capital Management and shares his investing insights at Investing Caffeine.