INDEPENDENT INSIGHTS Market insights from an independent perspective


December 19, 2018

Kevin Karpuk CFA

“Well bad news travels like wild fire. Good news travels slow. And they call me old wild fire everywhere I go.” - Boxcar Willie
Three short months ago, investors were cheering what looked to be another double-digit year in the stock market, but the graph below, showing daily S&P 500 levels, is a real-life version of the quote above. The blue line shows the steady upwards march of 2017, and the orange line depicts the volatility of 2018. Investor angst is certainly understandable in times like these; the recent crossing of the lines confirms that over the last twelve months, cash has been king.

If we want to build a constructive view of the market, we need only look at where we are today versus where we were in the third quarter of 2017. First, according to S&P/Dow Jones, earnings per share are 30% higher for large cap stocks and 62% for small cap stocks. The 2019 prediction for per share earnings growth for S&P 500 companies is still a healthy 12%. The Bureau of Labor Statistics currently shows a decline in civilian unemployment from 4.1% to 3.7%, and the Federal Reserve has been able to raise rates a full percent while trimming $300 billion of assets from their balance sheet. These latter points give the Fed some breathing room to act if necessary. 

If we want to take a negative outlook on the market, it is a lot easier today than it was just three months ago. Problems with and within China, an oil market that cannot get out of its own way, a potentially aggressive Federal Reserve, and the axiomatic “we are closer to a recession than we were before” are all current headline favorites. Throw in heightened geopolitical uncertainty, and it is easy to build a glum view of the future. 

People often ask about timing the market and how to know if we’ve reached the bottom or the top. My response is always the same and likely comes off as smug: if your timeframe is ten months or less, never own stocks; however, if it is more than ten years, investing in stocks is hard to beat. The future may be uncertain, but staying focused on long-term goals and risk tolerances, rather than making short-term, market-timing decisions, is critical to building and maintaining an appropriate investment solution. 

As always, feedback and thoughts for future issues are appreciated. From our family to yours, we wish you all the best for a prosperous 2019.

Kevin Karpuk, CFA Chief Investment Officer

Kevin is Cornerstone’s Chief Investment Officer and is involved with the firm’s Investment Policy and Strategic Planning committees. Kevin joined the company in 2000 after graduating from Lehigh University with a B.S. and M.S. in Economics and earned his CFA charter in 2005. Kevin and his wife Kat support many charitable causes and have established a donor advised fund to propagate their philanthropic interests. They live in Bethlehem with their two cats: Zola and Charlyne, enjoy woodworking, gardening, reading and travel. Kevin is the proud uncle to many nieces and nephews and loves spending time with and spoiling them.

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