You may be hearing more these days about U.S. Treasury Bills and the inverted yield curve.

Those who have followed me over the years might already have heard my Rip Van Winkle story. It’s back again. We are often so focused on what the stock market is doing today that we lose sight of the bigger picture. As most everyone knows, 2018 was not a good year for the stock market or for many other markets. On the other hand, 2017 was a very good year for most asset classes.

The year 1994 was a difficult investing period, when both stocks and bonds were down.  History may be repeating itself this year. The November 26, 2019 edition of the Wall Street Journal noted that Deutsche Bank, which tracks 70 asset classes, indicated that 90% were posting negative total dollar returns through mid-November. “That is on track for the highest share since 1920, when 84% of 37 asset classes were negative,” the WSJ stated. In comparison, only 1% of asset classes were negative last year.

The economy has been sending out some very positive signals this year. In the first and second quarters, we saw large amounts of corporate spending on capital projects. These range from new facilities, new equipment, and new computers to major new projects. Some of this spending has been possible from the repatriation of money from overseas.

We humans don’t like change. When change comes slowly, we learn to accept it. When change happens quickly, without our understanding of what the change portends, we become worried. The anxiety we feel results in a seeming lack of direction. If we know “what the deal is”, we can take measures to assimilate the change. Currently, our society is going through a number of changes, resulting in a disruption of the status quo.

In looking at the investment markets for the year, thus far, volatility is an important factor. The stock market, as measured using the S&P 500, began the year at 2674. It proceeded to go up to 2873 by early February, a gain of 7.4%. Most investors were very happy thinking that 2018 would be a continuation of the rapid increases from 2017. This was not to be the case.

Last year I wrote about the high earnings multiples of U.S. stocks. One of the easiest measurements of a stock, or stock market, is the relationship of earning to prices. For example: if Company A earns $1 over one year and the price of the stock is $20, its price earnings ratio is 20 (take the earnings and divide it into the share price). If Company B had earnings of 80 cents and it too had a stock price of $20, its price earnings ratio would be 25 (20 divided by .8). Currently, the trailing price earnings ratio (past years’ earnings) for the S&P 500 is 24.91.

Last year I kept waiting for the stock market to make a correction. As I pointed out several times, the price earnings ratio was out of line with historic values. During 2017, in addition to not having a correction, we saw volatility at extremely low levels. The combination of these two gave many investors the belief that the market couldn’t go down during such good times. This led some of our investors to indicate that they wanted to take more risk in their portfolios. As I told each of them, when the market is rising, you think you can take the downturn, until it occurs.

The U.S. House and Senate have each separately passed a bill that will create sweeping tax reforms. There are substantial differences in the two bills. A joint group of Republicans from the House and Senate are working to incorporate their differences into one bill. Unlike the last major tax reform that took place in 1986, this bill is not retroactive to the beginning of tax year 2017, but will be implemented in 2018. One tax provision that will be enacted may impact many of our clients negatively. Beginning in 2018, a cap of $10,000 on state and local tax deductions will be enacted.

People are asking me lately whether the stock market is at or near a peak. Of course, I was also getting this same question at the beginning of the year.