The global equity markets provide the closest thing we have to a free lunch. With little effort, they provide individuals with the means of growing their money over time and above the rate of inflation, thereby providing a savings method that not only preserves purchasing power but increases it.

After a very dismal December (one of the worst market declines in history) and a powerful rebound in January (one of the best months in history), February has been relatively calm.  But before you get giddy, we are not convinced the storm has completely passed.  As we wrote in our 2019 Outlook, this will be a time for patience.  As the drawdown chart below shows, we have not even recovered from our last de-risking event in late November.

The Quarter in Review

The fourth quarter ended in rough shape with major equity markets around the globe experiencing one of the worst ends to a calendar year.  Equity markets peaked in September when many hoped the U.S. growth engine would be able to lessen the pain from international uncertainty.  Unfortunately, that did not last as trade concerns grew and international economic reading deteriorated.  U.S. growth companies were particularly hit hard.  With their high exposure to international markets and being some of the biggest beneficiaries of global trade, market participants decided that the risk of holding them was too large.

In their book The Fourth Turning, William Strauss and Neil Howe argue that American history has moved in cycles that last roughly as long as a human lifetime, within which are four distinct two-decade eras, or turnings. They say that although we think our time is unique, the way people feel today—or at any time—echo the feelings and attitudes and behaviors of past times. Mark Twain’s quote “History doesn't repeat itself, but it often rhymes,” is a good summation.

October was quite a month for world markets, with many hoping November would be different. Though investors left the trough quickly for the second time this year, October’s losses felt different than February’s. February’s seemed merely ‘technical.’ October’s seemed more fundamental. The immediate context for February’s market losses were 13 months of positive returns, an optimism that the world economy was in a synchronized growth profile, and the reassuring sense that the impact of the new U.S. tax laws were still ahead of us.