This editorial originally appeared in the Wall Street Journal:
Regarding the movement of equity prices, we associate with the words of Alan “Ace” Greenberg, the head of Bear Stearns during the 1987 market crash: “Stocks fluctuate, next question.” The good news in 2019 is that mostly they fluctuated up, which offers a lesson or two.
Stock prices fell Dec. 30, no doubt in part as investors took profits before the end of the year. But what profits they probably are. With one day of trading left in 2019, the S&P 500 was up 29% for the year, the Nasdaq Composite had risen 35%, and even the dowdy Dow Jones Industrial Average climbed 22%. Apple and Microsoft, which drove much of the increase in the Nasdaq, each now have market capitalizations of more than $1.2 trillion.
Anyone who sold a year ago missed a major boost in net worth, yet at the time the investor mood was negative. Markets had declined in the fourth quarter of 2018 as the Federal Reserve tightened money and Donald Trump’s trade war accelerated. Fears of recession were widespread, and even Mr. Trump had stopped touting stock prices on Twitter.
One lesson is that no one knows how stocks will perform in any given year because so much can change.
In 2019 the Fed quickly corrected its December 2018 mistake of raising interest rates. Inflation stayed under control. Mr. Trump decided that he wanted a trade truce with China, notwithstanding some harrowing fits and starts along the way. The momentum built by tax reform and deregulation helped the economy, and especially the job market, stay remarkably buoyant despite a trade-induced recession in manufacturing.
If you predicted all this, raise your hand. We didn’t think so.
The same uncertainty applies to stocks in 2020, an election year that adds political volatility to the usual economic and policy variables. Will Mr. Trump revert to trade populism if his reelection looks to be in jeopardy? Will markets fall, at least for a while, if Bernie Sanders or Elizabeth Warren appear likely to win the Democratic presidential nod?
The truth is no one knows, though the fact that some people think they do is what helps make a market. You know, for every buyer there’s a seller. Some poor folks probably even heeded the infamous Oct. 21, 2016 article in Politico that began: “Wall Street is set up for a major crash if Donald Trump shocks the world on Election Day and wins the White House.” The S&P 500 was then trading at about 2200. It closed Monday at 3221.
The lesson here is that, as Warren Buffett likes to say, don’t bet against the United States to succeed. America makes mistakes, voters sometimes hand power to misguided politicians, and the public sometimes succumbs to financial manias that turn into panics and crashes. But left to work, trade and invest without too much political interference, Americans unleash their energies in productive fashion. Stocks fluctuate, but over time they go up—often in years you least expect it.