This past Saturday night, my wife and I went out with a couple of our friends. They had paid for my birthday dinner a few weeks prior. So, it was our turn to repay the favor for one of them.
My wife found a relatively new French restaurant here in town for the occasion. We had the option to choose either a 6- or 10-course ‘tasting menu,’ or order ‘a la carte’ off the menu. The online reviews had all been raves, and it was in a relatively hipster part of town.
It sounded perfect, and we were all looking forward to trying it out. As you can surmise from the title of this week’s newsletter, things didn’t go as smoothly as we would have liked.
I won’t go into the nitty-gritty details of what went wrong. Let’s just say almost all of them were, what I would call, rookie mistakes. However, even rookie mistakes can add up, and they certainly did the other night. So much so, it is very unlikely we will return.
Maybe I am getting more curmudgeonly as I get older. Perhaps I am remembering a past which didn’t really exist. Things really weren’t as efficient as I remember them being. They didn’t run quite as smoothly. The good old days really weren’t all so good.
Could be.
The problem with waxing nostalgic, almost by definition, is that it makes the assumption things are truly different than they were. However, it seems I almost always regret it whenever I say “this time is different,” because it rarely is. At best, or worst as the case may be, this time is usually little more than a “variation on a theme.”
Fast food joints have always gotten orders wrong. People have lost their patience with airport gate attendants ever since there have been airport gate attendants. Doctors made plenty of errors in the past, as did bankers, lawyers, accountants and engineers. Plenty of major league players haven’t run out of ground balls over the years. Every generation thinks the music and comedy of the ensuing generations are garbage. The same goes for fashion and hairstyles.
In fact, the rookie mistakes we had at the restaurant the other night are nothing new. They are little more than what has routinely happened, countless times, over the years. That is the reason why people lose their jobs and why businesses close. People make mistakes. Workers don’t care about their jobs. Managers don’t train their associates correctly. Business owners either don’t pay attention to the details or they don’t have a clear definition of what success looks like.
So much so, you could almost say our experience last Saturday was, as Yogi Berra might have said, like déjà vu all over again. Been there and done that, numerous times.
The same could be said of investors over the last 17 years. They know the market will come roaring back after it sells off. They have faith in the Federal Reserve to backstop the financial markets and the economy. They believe the gravy train from Washington will keep the rails greased, even if they might bemoan our burgeoning deficits.
And, you want to know what? They would be right.
From the end of 2008 through 12:40 pm CDT on May 30, 2025, the S&P 500 has delivered an annualized rate of return of 14.245%. Historically, the accepted average return for large-cap stocks is closer to 10.0%.
Over that same period, through the end of Q1 2025, U.S. Gross Domestic Product has grown at an annualized rate of just 2.21%. This compares very poorly to the 3.425% annual rate the United States enjoyed from December 31, 1949 through the end of 2008.
In essence, since the end of the Financial Crisis, the U.S. stock markets have outpaced their historical average by more than 4% annually. This, while the economy has quietly slowed, growing more than 1% below its historical pace.
Obviously, things would appear to be different this go around, but why?
Frankly, there are a number of reasons — ranging from greater retail access to investment products and a greater appetite for risk on the part of the average domestic investor, to an obscenely profligate federal government and a prolonged period of extremely low interest rates that made nearly every paper asset, other than deposits, look inviting. Whew.
More products, greater willingness, lower interest rates and more-than-ample liquidity. Voila. That is a potent recipe for strong returns, and investors have gotten extremely used to the results. Why wouldn’t we have more of the same moving forward?
- After all, will there be fewer investment products and alternatives available to retail investors?
- Will the average American suddenly develop a bunker mentality after more than a decade and a half of outsized results?
- Will Congress really have the will to take away the proverbial punch bowl?
- Is the Fed really so independent that it will be able to give the U.S. economy and financial markets the ‘tough love’ some might argue they need?
In other words, will things really be that different in the future than what/how they are now? If not — and that previous paragraph makes a pretty compelling argument they won’t be — why shouldn’t domestic investors simply “buy the dips” when all hell seems to be breaking loose?
After all, everyone—and I repeat everyone—knows the markets will always come back. Right?
Could be—and probably is. However, that doesn’t mean it will happen overnight.
On 12/31/1999, the S&P 500 closed at 1,469.25. Now, get this. It didn’t close above that level at the end of any calendar year until, drum roll please, 2013. To be sure, it came very close at the end of 2007, closing at 1,468.36. However, as we all well know, the index fell apart the next year in 2008.
That is a crazy amount of time, and a lot of people seem to have forgotten it. Buy an S&P 500 index product in December 1999 and don’t show a gain until Q1 of 2013? How does that sound to you? The market always comes back until it doesn’t, right? Shoot, the Fed was monkeying around with monetary policy and Washington was spending money it didn’t have back then, too. I mean, it wasn’t really all that long ago.
So, why the overconfidence this time around? Or are our memories really just that short when it comes to investing?
These are important questions because, currently, the markets seem to be ignoring risk. The only things that seem to matter are the President’s comments about tariffs.
- When he announces a fresh batch for some unfortunate country or bloc, the market sells off, say, 1.0%.
- When he puts everything on hold a day or two later, the market rallies like 2.0%.
Trust me, investors like this little game.
However, lost in this are the fundamentals. In fact, I recently had someone ask me if the fundamentals still matter. Of course, I told them they always matter. Investor psyche and the ‘fear of missing out’ can play a huge role in short-term performance.
However, when the dust settles and the smoke clears, stock prices are ultimately about corporate profits. As you can imagine, corporate profits tend to have a pretty strong positive correlation to economic growth.
Therefore, the domestic stock market’s surprisingly strong performance this month has been a little concerning to me. Don’t get me wrong, I am not trying to look a gift horse in the mouth. I just don’t want it to be a Trojan horse, if you catch my drift.
After all, I have been there and done that. I have seen when domestic investors quit worrying about the fundamentals and place too much emphasis on “other things,” things like social media posts and the belief the markets will always bounce back. The results can be brutal, even if the market DOES eventually ‘come back.’
With this in mind, I’ve got to tell you, that waxing nostalgic tends to blur historical reality. Service has never been as good as we remember, and the markets don’t always bounce back as quickly as we would like.
If we can remember these basic facts, we won’t be as disappointed when the evening out at the restaurant doesn’t go as planned or when stocks don’t behave as we would like. Why? Because this time isn’t really any different.
We just don’t remember the last time as clearly as we should.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.