‘Breaking News’ may not be news, or breaking
As we have said before, we usually have Bloomberg television running in the background in our offices. Earlier today, they showed a Breaking News clip of President Trump signing a proclamation that Monday, January 15, 2018, will be Martin Luther King, Jr. Day, and declaring it a federal holiday. We’re pretty sure that date was already on the calendar, but to be sure we weren’t missing something, we asked our good friend, Google. Sure enough, President Ronald Reagan signed into law in 1983 that Martin Luther King, Jr, Day would be celebrated on the third Monday of January as a federal holiday, beginning in 1986. Hardly breaking news, at this point. Another example of Washington, DC, doing what it does and the press doing what it does.
We need to be skeptical of the breaking news hysteria that surrounds us these days, particularly as it pertains to the stock market. The Dow Jones Industrial average and the S&P 500 are at record highs, and continue to push upward. Depending on the headlines and the breaking news stories you are exposed to, this is either a sure sign of impending doom or the beginning of a new era in investing. There are experts lined up supporting both projections.
1. is a great example of what might become ‘breaking news’. In 2017, the following ten indices finished the year with positive gains – the S&P 500, S&P 500 Growth, S&P Value, Russell 2000, Russell 2000 Growth, Russell 2000 value, MSCI World ex-USA, MSCI Emerging Markets, Barclays High Yield Bond and Barclays Aggregate Bond indices. All with positive returns! Amazing! Guess when that last happened? That hasn’t happened since…2016. Wait, what? Last year? Okay well, that might be the case, but to find the last time all those indices ended the year in positive territory two consecutive years in a row, we must jump in our time machine and go all the way back to…2009 and 2010.
2. so that wasn’t that long ago, but do you remember the Great Recession of 2008? The market really had no direction to go except up in 2008 and 2009. Let’s go back further to see the last time it happened prior to 2008. The last time all those ten indices ended the year in positive territory prior to 2008 must have surely been decades ago. Or, not. All ten indices were positive in 2003, 2004, 2005 and 2006.
The point we are trying to make is that the record highs and the general feeling of market exuberance might be ‘breaking news’, but it is not necessarily an indicator that anything historical or monumental is happening. We had a good year in 2017. We had a good year in 2016, So far, we are having a good start to 2018. There will be more good years and more bad years to come, but they are impossible to predict accurately. It is far more important to make sure that you are appropriately invested for your time horizon, your retirement expectations, your risk tolerance. A greater percentage of equities in your portfolio typically means more risk, a greater percentage of bonds in your portfolio equates to lower risk.
Here are the returns of the major indices for 2017 – The S&P 500 was up 21.83%, the MSCI EAFE index was up 25.62%, the Barclays Aggregate Bond Index was up 3.54%, the Russell 2000 index was up 14.65%, the MSCI Emerging Markets index up 37.75%, the SPDR gold ETF was up 12.81%, the FTSE Real Estate index was up 4.52% and the Global Natural Resources index was up 22.63%.
*The index returns are drawn from Morningstar Advisor Workstation. Indexes are unmanaged and cannot be invested in directly by investors. MSCI EAFE NR USD-This Europe, Australasia, and Far East index is a market-capitalization-weighted index of 21 non-U.S., industrialized country indexes. S&P 500 TR USD – A market capitalization-weighted index composed of the 500 most widely held stocks whose assets and/or revenues are based in the US; it’s often used as a proxy for the stock market. TR (Total Return) indexes include daily reinvestment of dividends. Bloomberg US Agg Bond TR USD This index is composed of the BarCap Government/Credit Index, the Mortgage Backed Securities Index, and the Asset-Backed Securities Index. The returns we publish for the index are total returns, which includes the daily reinvestment of dividends. The constituents displayed for this index are from the following proxy: iShares Core US Aggregate Bond ETF. MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. Russell 2000 – Consists of the smallest 2000 companies in the Russell 3000 Index, representing approximately 7% of the Russell 3000 total market capitalization. The returns we publish for the index are total returns, which include reinvestment of dividends. The MSCI Emerging Markets (EM) IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of May 2005 the MSCI Emerging Markets Index consisted of the following 26 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela.. The FTSE NAREIT Equity REITs Index is an index of publicly traded REITs that own commercial property. All tax-qualifies REITs with common shares traded on the NYSE, AMSE or NASDAQ National Market List will be eligible. Additionally, each company must be valued at more than $100MM USD at the date of the annual review. Equity REITs include Diversified, Health Care, Self Storage, Industrial/Office, Residential, Retail, Lodging/Resorts and Specialty. They do not include Hybrid REITs, Mortgage Home Financing or Mortgage Commercial Financing REITs. Bloomberg Sub Gold TR USD Description unavailable. Formerly known as Dow Jones-UBS Gold Subindex (DJUBSGC), the index is a commodity group sub-index of the Bloomberg CI composed of futures contracts on Gold. It reflects the return of underlying commodity futures price movements only and is quoted in USD.