What Now?
Since our last missive equity markets in the US have rebounded nicely from their fourth quarter stumble. The US market (S&P 500) was down approximately 20% from late September to late December of 2018. Since then, we have seen a more than 9% positive return in that same index. While we have not recovered all of the losses suffered during the downturn, it has been nice to see such a strong rebound.
The action certainly furthers one’s resolve to not try to “time the market” via wholesale selling and buying back of equities. It also displays the importance of an appropriate asset allocation strategy. If you haven’t had the chance to read our “Bear Market Toolkit” please do so. It is a great tool to have in your psychological quiver the next time the markets start to misbehave.
Rally fuel + Shutdown threats…
The recent rally was fueled by two events.
(1) The signal that the US Federal Reserve will be more patient with their future rate increases and…
(2) better rhetoric surrounding the potential for a lasting trade deal with China.
Even more interesting was the fact that this rally ensued while the government was shut down and 800,000 federal workers were furloughed. The government has since reopened but the real threat of another shutdown exists. This political uncertainty remains a headwind.
Mixed Signals
Recent macroeconomic data releases in the US have been sending mixed signals. Manufacturing surveys have shown significant weakness as have recent consumer confidence indices. The January jobs report will show the effect of the shutdown so we won’t have a real snapshot of the employment picture until the next jobs report.
Meanwhile, the bond markets have seemingly priced in no further rate increases for the time being. This is odd as the beginning of the year saw expectations for 2 or 3 rate hikes.
Global Slowdown?
Globally, the economic picture isn’t any more clear than it is at home.
China is in a relative slowdown. Certainly, the central government there will be looking to stimulate, which could help the overall global growth picture.
Europe is experiencing persistently slower growth, while the UK continues to be dominated by “Brexit”. Despite this, the UK is actually seeing a healthy labor market.
Where do we stand at Shorepine Wealth Management?
To conclude, January’s rally fueled by a more “dovish” (i.e.: less willing to raise rates) Federal Reserve and better rhetoric around trade with China pushed equity markets around the globe into a strong recovery from the late 2018 downturn. It is obvious that trade tensions have economically hurt China, Europe and most recently the US. Any removal of these trade tensions would be a welcome relief for economies and the markets and could help recover some more of the losses we experienced in late 2018. So the signal we see there is not to aggressively sell into this rally yet.
However, at the latter point in an economic cycle (where we are today), it is best to be more secure in one’s risk exposures. For the long term investor it makes sense to review your portfolios and ensure that the strategy you have employed is the right one for the future, for you.
You do this BEFORE something happens, not after. We are here to help.
We continue to take a cautious view on the markets but do not want to subject our clients to missed opportunities. Thus, we continue to rebalance your accounts opportunistically and keep you invested according to your risk profile and unique circumstances.
As always, we wish you well for the coming months and look forward to talking about your investments soon.
If you have any questions or have experienced any changes in your financial situation please do not hesitate to contact me. We appreciate your being a part of the Shorepine Wealth Management family and wish you all the best!
Investment Products are Not FDIC Insured. No Bank Guarantee. May Lose Value. Investing involves risk. All written content on this website is for information purposes only. Opinions expressed herein are solely those of Shorepine Wealth Management, unless otherwise specifically cited. This is neither a solicitation of offers to buy securities nor an offer to sell securities. Past performance is no guarantee of future results. Material shown here is believed to be from reliable sources however, no representations are made by our firm as to another parties’ accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. Shorepine Wealth Management, LLC is a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.
