Tesla (TSLA) may go down in history as the best performing large cap stock ever for its phenomenal performance over the last two years. From December 31, 2019 through today, Tesla has gone from $83.67 (adjusted stock price) to $1,033.77, an unheard of total return of +1,136% being literally off-the-chart compared to the S&P 500 up +42% (the relatively flat blue line; see below)! My reason for pointing this out is that there continues to be lots of doubt in the resiliency of these equity markets as we continue to climb a “wall of worry” to new heights.
Tesla is the significant outlier here, of course, but other stocks and broad indices have managed to capture investor interest with new recent all-time highs for the S&P 500 (large cap) and Russell 2000 (small cap) indices. If stocks keep testing new highs, what is there to worry about? Plenty, it seems!
In the aftermath of the COVID pandemic, a laundry list of economic issues persists. The list includes worries about inflation (and hyperinflation) from unending fiscal stimulus to prop up impacted businesses and individuals and an easy-money Fed keeping the spigots open. Other economic concerns include slower economic growth than potential due to supply chain shocks keeping businesses from fulfilling orders; especially in light of an economy with plenty of pent-up demand due to the COVID slowdowns. Also, there still is festering unemployment amongst the economic sectors still fighting to recover fully.
On the other side of the coin, why should we take this all in stride and stay the course? We could go on and on about productivity gains due to technical innovation, comparative advantage of a global economy, and new entrepreneurial ventures creating new economic paradigms, but the answer could be much simpler. Simply, no matter how bad it ever gets, things have always gotten better. The book “The Rational Optimist”, by Matt Ridley, discusses in depth the historical precedence that no matter how bad things get, they always have gotten better; we just need to be patient and have a long enough time horizon!
As readers of this blog well know, no one can call the market and our view is that a long-term strategic investment strategy developed to achieve your goals is the best approach. If you have a long time horizon and income/net worth sufficient to support your needs and wants, stay in the market and wait it out. If not, we can develop a strategy that recognizes the risks and positions you for a high probability of success.