By Rick Lear, Lear Investment Management
The most hated bull market in history rolls on into the final weeks of the decade. After a lost decade for stocks in the 00’s, the 10’s are a victory for the savvy equity investor. The battle was intense at times but like in the great Tom Petty song – the stock market will Not Back Down.
Mr. Petty wrote this song after his house was burned down by an arsonist. The rock legend rebuilt a bigger house on the same property to show he would not run from such malice. Optimism related to stock investing has been burned down several times, but the rebuilding process has begun and could attract funds into stocks.
The crisis of confidence is clear in one of our favorite data points – stock fund flows. According to a December 8, 2019 Wall Street Journal article:
“Investors have pulled $135.5 billion from US stock-focused mutual funds and exchange traded funds so far this year, the biggest withdrawals on record, according to data provider Refinitiv Lipper, which tracked data back to 1992.”
Perhaps those investors looking to grow their wealth will realize select stocks offer more favorable risk-adjusted returns than fixed income and will return to the equity markets. Investors fleeing from stocks as indicated by fund flows, gives us confidence the market can continue to grind higher.
The Lear Global Vigilance portfolio has continued to trim fixed income in favor of equities as the year progressed, but the portfolio still owns a small portion in short duration fixed income. We believe having liquid investments ready to buy stocks on dips is important - especially after a strong equity run like 2019.
It is possible those equity investors participating in the rally are waiting until after January 1 to sell stocks in the new tax year (in order to defer capital gains). This could create selling pressure to start the year, but we believe there will be support for stocks on dips.
There are still real risks to the stock market - including the presidential election in 2020. For now, the Phase One trade deal has progressed, and the feared December 15th tariffs did not get implemented. In summary, the large threats to growth are not over, but have taken a backseat for now. The global economy will never be “all-clear”, but the tail-risks have been tempered and the most hated bull market in history rolls on.
While it has been a remarkable decade for our investors, we are now focused on investment trends for the next decade. We pledge to work tirelessly. As Mr. Petty sings; “There is no easy way out. And, in this life that keeps on pushing us around, I will stand my ground and I won’t back down.”
Rick Lear is the Founder and Chief Investment Officer of Lear Investment Management. Lear is a pure investment firm founded in 2015 with focus on generating returns with measured risk. With over two decades of experience, his ability to identify global investment trends has resulted in superior outcomes for clients.
The Lear Global Vigilance Strategy is rated 5 Stars by Morningstar and ranks in the 5th percentile of managers in the Tactical Allocation category.
INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS OR INVESTMENT STRATEGIES. BLOOMBERG IS THE SOURCE OF MARKET DATA. INVESTMENTS INVOLVE RISK AND ARE NOT GUARANTEED. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.