The Boomerang (2/8/2019)

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.

This brings us to 2019. Commentators are currently expounding on how well the stock market has done in January. As a matter of fact, the S&P 500 had the best January in its history. Let me take a slightly different approach and give some perspective to this amazing gain. In the first place, as I was saying last year, earnings are looking very good and ultimately this should make for a strong stock market. Indeed, the rise in January is attributed to the sharp upsurge in earnings. Not bad! In the second place, it’s about time. As I indicated in my January newsletter, one key measurement for stocks is the price earnings ratio. This ratio, which had been out of line for some time, became reasonable by year-end, with the DOW Jones Industrial Average at about 14 price to earnings ratio and the S&P 500 at about 15 price to earnings ratio. This is all good news and bodes well for February.

Back to my buddy Rip Van Winkel. I normally talk about Rip having gone to sleep at the beginning of the year, waking up at the end of the year, and saying, “Nothing much has happened.” In this case, the scenario is that Rip goes to sleep on January 1, 2018 and wakes up January 31, 2019. What does Rip see? When he went to sleep the S&P 500 was at 2674. When he wakes up 13 months later the S&P 500 is at 2707, up a mere 33 points or about 1.2%. His comment this time? “Nothing much has happened.” All the gnashing of teeth and worries of last year are in the past and a new and brighter year has begun!

Ed Mallon

Posted February 8, 2019