KFA Blog

Market Commentary: Q3 2017

And the Winner is _______?


I've ceased making predictions on things because we'll see how they turn out.
-David Plouffe


A lot can happen in 10 years!  Can you even think back to what you were doing 10 year ago in October?  Perhaps you were enjoying the start to a nice autumn, watching college football or taking in the fall colors.  Maybe you were planning for Halloween, Thanksgiving and Christmas.  Whatever the case maybe, I am sure you did not realize that on October 9, 2007, the stock market would peak before cascading into the Financial Crisis of 2008.  While you may not remember specifically that the market peaked in October 2007, I am sure you remember 2008, and certainly the depths of financial pain felt on March 6, 2009 when the stock market hit bottom.    


Now I am sure your interest is mildly piqued!  You might be thinking “Uh-Oh they are talking about the October before the financial crisis.”

Here is an interesting question posed by our friends at First Trust* – Imagine if you had a crystal ball, and knew that the financial crisis was going to happen, supposedly like Doctor Doom and others who perhaps were somewhat clairvoyant, would that crystal ball have told you to invest in the S&P 500, a 10-year Treasury Note, gold, oil, housing, or cash?   What do you think?  Be honest! 

Well, we looked into our revisionist-history-crystal-ball…. And the Winner is… the S&P 500!

“The S&P 500 has generated a total return (capital gains plus reinvested dividends) of 7.2% per year, essentially doubling in value in ten years.   Gold did well, but lagged stocks, increasing 5.7% per year.  A 10-year Treasury Note purchased that night (now coming due), would have generated a yield of 4.7%.  Oil was a laggard, down 4.3% per year.  Home prices increased about 1% per year, on average, and “cash” averaged 0.4%, both trailing the 1.6% average gain in the consumer price index.”1   

At the risk of sounding like a broken record, a skipping CD or the silence of a failed music stream (whatever your generation happens to be), we still believe that investors are better off ignoring all those pessimists who became famous in 2008-09, invest in companies, and allow world class business managers to use your money to build wealth. We believed that ten years ago, and we believe it today.

Thus, as we move into the 4th Quarter, we continue to have the same outlook: we should have a favorable market for the next 12-18 months bolstered by solid economic growth, good corporate earnings and low inflation and interest rates.  Of course, we may experience bouts of volatility and/or pullbacks while Congress muddles rather ungracefully through healthcare and tax reform, and while the Fed pundits vacillate over the pace of interest rate hikes.  Nevertheless, we will continue to stay optimistic, diversified and disciplined to achieve your long-term goals and objectives.

Happy Investing!


Kabarec Financial Advisors, Ltd.



*Referenced First Trust Article – dated 10/2/2017

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