Streetwise for Friday, December 18, 2020

The Chinese zodiac will soon change from the Year of the Rat to the Year of the Ox. So, will it also mean a change of fortune for the stock market.

Since 1928, the S&P 500 has had its best performance in Years of the Pig, considered to be a symbol of fortune and prosperousness in Chinese culture. During those periods, the S&P 500 index delivered an average return of 16.5%.

Now we come to the year 2020, the Year of the Rat, which historically ranks as the third worst period for stock market returns among the 12 Chinese zodiac symbols, with an average gain of 3.3%. But wait, that was not the case this year. The S&P 500 index as of this writing is up a total of 15.39%, comprised of capital appreciation of 13.39% and a 2% dividend yield.

Next up is the year of the Ox, starting from February 12th, 2021 (Chinese lunar New Year Day) and lasting until January 30th, 2022. Keep in mind that an ox is thought of as diligent, dependable, combined with strength and determination. If you happen to have been born during the period of the ox, you are thought of as one who will enjoy great success.

Obviously, this is something short of a scientific analysis. For example, the stock performance in the Rat years was disproportionately skewed by the 39% loss in 2008. Nonetheless, it does give you something to think about as you stare into your crystal ball to determine what to expect from the markets in 2021.

Unfortunately, many investors are frightened of what is often touted as an over-bought market, one that could be leading up to a significant downturn and the start of another Great Recession.

You need to take heed and guard against joining the lemmings as they run for the sea. Reckless remarks such as, "sell everything – buy gold – the government is going to take control of your money," reminds me of a voice-over trailer for a finance-themed horror film.

Over the years, some of the most successful investors are those with an unwavering belief in the stock market's continued resiliency. Yes, financial instruments fluctuate in price, that is the nature of the beast.

At the same time, there is a stark dichotomy between the top and the bottom economic strata. The bottom 19 percent of Americans are financially underwater, meaning they have zero or negative net worth, according to a report by the Institute for Policy Studies. Moreover, 60 percent of Americans report not having enough savings to cover a $500 emergency.

The Institute suggested several tax strategies that might combat the wealth inequality. Specifically, raising taxes on higher incomes, increasing capital gains tax rates, and expanding the estate tax. Yet, the tax reform passed by Congress went in exactly the opposite direction.

Although there is no question that financial rewards to those who earned it is certainly defendable. Still, you must wonder a bit when Microsoft’s Bill Gates, Amazon founder Jeff Bezos and Berkshire Hathaway CEO Warren Buffett collectively have more wealth than half the population of the United States.

The wealthiest 25 billionaires have more than $1 trillion in wealth. Per Bloomberg, That is equivalent to the wealth of 56 percent of the U.S. population, according to Bloomberg. We have not witnessed such extreme levels of concentrated wealth and power since the first Gilded Age a century ago.

Such staggering levels of wealth inequality could threaten our democracy, compound racial and class divisions, undermine social cohesion, and destabilize our economy.

I mention these statistics to point out that building a balanced porfolio continaing equities will not give you a pass into the billionaire’s club but over time it may likely enable a more enjoyable lifestyle.

The statistics speak for themselves. Over the past 30 years the S&P 500 index has a compounded annual growth rate of over 8 percent total return adjusted for inflation. Yes, there were intervals when stock prices declined, such as we are seeing now. Unfortunately, myopia often prevails over farsightedness.

Note to Readers - I will be teaching Advanced Investment Analysis, beginning Monday, January 13, for Ringling’s Osher Lifelong Learning Institute. Call 941-309-5111 for registration/information.

Lauren Rudd is a Financial Advisor with Raymond James & Associates, Inc., member New York Stock Exchange/SIPC, located at 1950 Ringling Blvd #401 Sarasota, FL 34236. You can contact him at 941-706- 3449. This market commentary is provided for information purposes only and does not constitute a recommendation.

Opinions are those of the author and not necessarily those of Raymond James. Information has been obtained from sources considered to be reliable, but Raymond James does not guarantee the material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. One cannot invest directly in an index. Raymond James is not affiliated with and does not endorse, authorize or spondsor Mr. Rudd's activies eith Ringling Osher Lifelong Learnging Institute.