It’s Bill Rapp, the Mortgage Viking here, let me tell you about what the Good Ole Boys on Wall Street are talking about today…
The Stock Market has decided to test the intestinal fortitude of investors this quarter, and the silver lining I’ve found to the recent investor experience is that the table is currently set for a reasonable recovery is my view.
Market corrections are always more violent than expected, and the most recent has been no exception.
Starting with the economy, I do not believe we are entering an economic downturn yet. As a reminder, the most dramatic equity bear markets occur during or just prior to a recession. This view increases my confidence that the rest of the data we’re looking at indicate a sizable rebound from the December lows.
In fact, if history is a guide, I see the potential for double-digit returns in 2019. This view is supported by four pillars of market data.
The first pillar is valuation. We believe concerns about elevated valuations dampening future returns have largely evaporated in the wake of the current selloff.
While tax reform tailwinds certainly played a role in the decline as earnings growth outstripped market appreciation in 2018, we note that other valuation metrics unaffected by tax law changes saw similar declines.
Global economic deceleration, slowing U.S. corporate earnings growth, geopolitical tensions, and possible central bank missteps all came together to create an environment where much of the world was pushed into a bear market, with the U.S. avoiding one so far by a whisker.
As markets move on from these challenges, the path forward doesn’t look all that bad. In fact, we don’t want this time to be different. I hope to experience the powerful returns historically generated when valuations were this reasonable, sentiment this bearish, and recent returns this painful.
If this time is like all the other times when similar conditions have prevailed, investors should be far happier with their stock market stockings in 2019 than they were in 2018.
This is Bill Rapp, the Mortgage Viking, and please do not forget to subscribe and share this post if you found it useful!
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