Augusta, GA (WJBF) — As 2017 comes to a close, The Means Report sits down with their friends from the Fehrman Financial Group to look at how the economic year has played out. Will Caywood explains how the stock market has fared as well as well as how this how it compares to last year, and what we can possibly expect in 2018.
Brad Means: Welcome back to The Means Report. Thank you to Jane Jenkins Herlong for being with me in my first segment. I hope she makes a lot of money on her book and then I hope she knows how to invest it. Will Caywood and the team at the Fehrman Investment Group sure do and we are happy that Will is back with us to help us with our finances. Welcome back.
Will Caywood: Good to be here Brad.
Brad Means: Well here we are, we find ourselves near the end of the year and from my lay point of view, I watch the stock market, it seems like do this all year. How’s it performed so far?
Will Caywood: So it’s been another good year. I sound like a broken record a little bit. I come on here, things have been great. It’s a wonderful time. But no it really has been. I mean the third quarter was excellent again. Year to date, the Dow’s up 18, 19%. S and P is up 14 to 15, the Nasdaq with a tech heavy index is up about 21. If you look from an international standpoint, we talked about it in July, how well international’s done. So if you go to certain parts of the world, you’re up 20, 30% year to date. So it’s been an excellent around the world so far. Bonds have done well, large cap outperform small cap, growth’s outperformed value so it’s been a good year.
Brad Means: Yeah, but I will say historically you have not been afraid to give us the gloom and doom when it’s appropriate. So I know it’s, I mean, this man can be real with us when he needs to be and I respect that and appreciate that, but yeah, okay, so we’re on a little bit of an uptick right now. What’s causing it and more importantly, how long can we sustain this?
Will Caywood: Yeah, that’s the million dollar question, or trillion dollar question or whatever, but from that economic standpoint, there’s really not much that scares us right now which is a little bit scary in itself right? So when there’s nothing to worry about, you probably have to worry about something that you don’t know about. But from a corporate earning standpoint, things are strong. Inflation’s not a big concern at this point. Interest rates are relatively low still so there’s not a lot from an economic standpoint that worries us. If you look, just a neat stat I saw the other day, the week of October 16th, just last week, every day had a new all time high. For the previous six weeks before that, it was a new all time high. For the previous seven months before that, all time high. We hit about 60 to 65 all time highs this year so far so it’s been an amazing run. Really since 1900, this is the third longest economic expansion ever. So we go back to the mid ’60s, which you could tell me about that, I don’t know as much as I should. The mid ’90s were longer, but we just hit the 100th month of this current economic expansion and so by the end of it, we think it’s going to be the longest and the strongest ever, but at the same time, there’s going to be some more volatility and ups and downs than we’ve seen. It’s not going to be straight up forever.
Brad Means: Alright, so go back to a year from now during our visit last quarter of last year and put things into context versus the situation then and now.
Will Caywood: So going back to October, at the end of October 2016, it was a few days before the election, most polls had Hillary Clinton, 90 to 93% chance of winning the election. It was a very long shot for Trump at that point. Figured it was a foregone conclusion. I think most of us just wanted the election to be over with at that point because it felt like it’d gone on for four years itself, the election, but as we all know, Trump wound up winning. Most people thought the market would tank or be very volatile once he did because he was kind of an outsider, he’s not a traditional politician which we’ve learned over the last year. But it’s been anything but that. I mean if you look at the Dow, last year it was trending about 18,000. Today it’s trading over 23,000 so it’s a great move since then. He probably tweets more than we like for him to. I mean we all follow him on Twitter probably or we find out what he does because that’s what a lot of the news is is what he tweets each day. But you know reviewing notes from our interview last year, right after the election in November, those five points that we said he needed to really do well on to be successful, and they were infrastructure, it was health care, it was tax reform, it was trade and those looser fiscal policies. And so those five things, we’re still working on all of them but there seems to be a sense of optimism around the administration that hasn’t been there in a few years.
Brad Means: Speaking of a few years, go back say 20, 30 years, alright just to get a time frame here, and compare the stock market then to now. What’s different about it? Is the infusion of tech companies the biggest change?
Will Caywood: That’s one of them. I mean if you go back to ’96, I read the stat the other day, you go back to ’96, there’s half as many companies that are publicly traded today than there were in 1996. So that’s just 20 years ago. So there’s fewer companies, the reason for that, it’s expensive to be a public company. There’s been a lot of consolidation within businesses, but I think it’s interesting because the companies that are currently publicly listed are bigger than ever, so they’re all huge companies. Another interesting stat, you go back to 1980, Georgia won the national championship that year, maybe that’s a good number, maybe we can win another one this year. Seven out of the top ten largest US companies in 1980 were oil companies, so it was Shell, it was Exxon, it was Slumber J, it was Standard Oils in different states, it was those type companies in 1980, seven out of the top ten. You fast forward to today, top five our of the top ten largest are all tech companies. That’s Apple, it’s Facebook, Amazon, Google, Microsoft, those are the top five. So it just shows how much the world has changed just in a brief 30 years.
Brad Means: You know you mentioned the unknown and how maybe something could be coming that could impact the markets. Any potential headwinds that you could talk about now?
Will Caywood: Yeah, so speaking of wins, unfortunately the hurricanes were a big, are in the news a lot right now with corporate earnings coming in for the fourth quarter looking back at the third quarter, a lot of companies especially with Gulf Coast exposure, Florida, Texas, along the Gulf Coast here, have cited the hurricane as eating into some of the corporate earnings for that particular quarter. Another one is the upcoming showdown between on the debt ceiling, that seems to be the can being kicked down the road. I mean that just seems to come up all the time. That’s December eighth, that’ll be the headlines a lot for the next couple of months. And finally, the Fed, the Federals are something we talk about a lot obviously. If they raise rates too quickly, it could damper growth some. If they raise rates too slowly, the market could become overheated. So it’s always a balancing act with the Fed. Another key point to keep in mind is Janet Yellen, the current Federal Reserve Chairman, her term is up in February of ’18. So one school of thought says we’re going to continue with her. Another one we’re going to look at an outsider. So that’ll be something the market looks at going forward.
Brad Means: Well, again, and I know that you know the year’s almost up but can you look at any potential positives coming our way that could help?
Will Caywood: It’s all about tax reform. I mean I know it sounds cliche, it matters a lot to corporations, it matters to me and you. It matters to everybody. I mean what’s going to happen with tax reform. If it goes through like they say, it could be as much as two to $3 trillion come back to the US from overseas. With the repatriation of that cash, we’re looking at another two to three to 4% growth in the stock market just on that move alone. We’re also looking at seasonality. We’re getting into the months of the year, it’s my favorite time of the year. You got November to December coming up, those are two of the best months historically for the stock market. So seasonality’s on our side so that should push us to a strong end to 2017.
Brad Means: Alright, I like the way this interview went. I don’t want to be overly optimistic, but I mean you had some encouraging things to say.
Will Caywood: Well good, maybe it’s the blue tie mojo or something, I’m not sure what it is, but yeah, things are going well right now.
Brad Means: No, I love that, when we saw each other in the lobby, we planned it all out. But we appreciate it Will Caywood and give our best to Jeff Fehrman as well, and thank you.
Will Caywood: You’re welcome, thank you.
Brad Means: Absolutely, we’ll have him back at the beginning of 2018. See how things are shaking out then. You know you can always count on the Fehrman Investment Group. Pay them a visit, give them a phone call, or go to their website now.