• Daryn Fleming, Ph.D

The Worst December for the Stock Market Since 1931

It certainly has been a horrible couple of months for the Stock Market. In my last report I was talking about how the market was on fire ever since the election of President Trump. That was the case for almost two years. But something has changed. The market is suddenly on the decline. It has been the worst December for stock market performance since 1931, around the time of the Great Depression. You could argue that the market is still up 13% higher than what it was when President Trump took office. But the past few months decline certainly has the attention of investors. Let's see if we can figure out what exactly is the problem.

The trouble began to appear with the month of October. What is historically the worst month for the stock market actually was not that bad. The market did not continue grinding higher like it had been for most of the past two years. But it didn't have any sort of dramatic "flash crash" or other calamitous event. As October closed out it seemed that we had got through the worst month of the year.

Many experts believed that it was simply the election jitters, the sort of uncertainly that markets just do not like. But the election day came and went. After the election the market still struggled. November went on to be one of the worst months for the stock market that we had seen in a long time. Where was the Santa Clause rally, that time of the year in November and December when historically markets perform very well? It was non-existent. By the time December got here the market looked like it was firmly on a new downtrend.

While I do not consider myself a traditional market expert by any means I will summarize some of the mainstream thought that is featured in the business media to try to explain the disappointing performance of the market.

The consensus among many financial experts is that the market is now predicting that a recession is looming for 2019 and beyond. Interest rates have been rising, as the Federal Reserve insists on raising rates every time they meet. The stock market has been on a 10-year long bull run. Markets are cyclical. Eventually the market will transform or deteriorate into a bear market. Some experts believe that because the economies of Europe and other regions of the world are not doing nearly as well as the U.S. economy, we will be ultimately dragged into another global recession like the one that occurred in 2008.

Some experts believe that the current lackluster market performance is nothing more than a pullback from a market that has been on fire for two years. They argue that pullbacks are normal and healthy, especially in markets that move up so fast. They believe that these pullbacks provide terrific buying opportunities for those who missed the market run up.

The wildcard here is the uncertainty and drama that always seems to surround the Trump administration. This drama coupled with the President's personal comments about the Federal Reserve and the stock market appears to now have a negative effect on the market.

The mainstream media has been reporting that there are at least seven criminal investigations of the Trump campaign of 2016, family businesses, charities and other Trump-related operations. These investigations coupled with a Congress that will soon be controlled by Democrats may be just enough to make the markets sick. Impeachment proceedings would most likely hold the market back.

So the bottom line is this -- we can expect lots of volatility in the stock market as this uncertainty continues. As a long-term investor I believe we should continue to load up on stocks through the market turbulence. The average bear market only lasts a year and a half. During the pullbacks the mutual funds and retirement funds get to buy discounted stock. So when the market comes back we are locked and loaded with cheap stock so that our profits will actually be bigger than if the markets just continued to rise without pause. It is simply a matter of looking at a glass as half empty or half full.

It is certainly going to be interesting to watch. Let's hope that the doom and gloom in the mainstream media about President Trump will come to an end very soon and return to sanity and some positive coverage. Perhaps the markets will then continue their move higher. Happy New Year and Happy Investing!


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