As you are no doubt aware, last week was a wild one in the stock market. The Dow Jones Industrial Average, the index most widely quoted in the media, fell about 5% over two days before eventually ending the week on a positive note. The index ultimately declined a little over 4% for the week.
Other indexes did worse while some fared better. The index for small company stocks, which had been on a bit of a run lately, dropped over 5% last week. Emerging markets, the worst performing asset class this year, did better, only dropping about 2%. Bonds, which had been lagging all year, largely did their job and held their value, increasing a fraction for the week. In short, returns were all over the place while being generally negative.
The third quarter (Q3) of 2018 brought new highs for U.S. stocks, volatility overseas, and the continued trudging along of the bond market. Politics held most of the headlines during the quarter, both at home and abroad, but stocks were largely able to ignore this as various aspects of the U.S. economy remained strong.
Here's a summary of how major market indexes ended the quarter and year-to-date:
You've likely heard on the news and elsewhere that this month is recognized as the ten year anniversary of the stock market collapse and the start of the Great Recession. While anniversaries normally entail celebrations to remember happy times, this one has tended to give me the chills. It was, after all, ten years ago this past week when Lehman Brothers was allowed to fail and the global economy felt like it was unravelling faster every day.
Managing our expectations is a hard thing to do. Should we lean negative so we're never disappointed, or should we always expect the best and revel when life goes our way? How does this impact our happiness? While people tend to put themselves firmly in the pessimist or optimist camp, can there be a middle ground where we try to set realistic expectations?
I've always liked the quote from Tom Magliozzi, the late co-host of the long-running NPR show, Car Talk, "Happiness equals reality minus expectations". The so-called Happiness Equation has been written and talked about a great deal and can be useful for investors, or anyone for that matter, when setting expectations in uncertain environments.
While my weekly posts are generally geared toward financial planning and investment topics, on occasion I'll veer off course and offer business updates. This is one of those weeks.
As I continue to build this business to serve you and your long-term goals it's important to keep up with the evolving technological landscape. Along these lines, here are a couple of updates designed to make your life just a little easier.
A common topic lately has been the problems with emerging markets and why the asset class is down so much this year. It's important for investors to examine these problems because the asset class is expected to generate excess returns over time but is underperforming now. We know we're supposed to "buy low and sell high", but in practice it's a very hard thing to do, especially when it comes to more complicated parts of the global stock markets.