February 2019 Market Outlook – Conflicting Signals

I hope everyone has survived the arctic blast covering most of the country, even those of you suffering in the 30’s-40’s degrees in Florida.

As we enter February, I am seeing a number of conflicting signals.

On the economy:

  • The positive signs are continued strong employment, improving wages for employees, and a Federal Reserve that seems to be cautious on interest rates.
  • The negative signs are slowing business investment and the housing market; declining business and consumer sentiment, especially expectations about the future.

Given that the consumer accounts for roughly 2/3 of the economy, and the history that declining consumer expectations precede recessions (although not in every case) this is a potential red flag.  The still open issues of US/China trade and a potential second government shutdown on February 15th also serve to potentially impact economic growth.

2.1.2019_MONTHLY_OUTLOOK_CHART_1

Source: SentimenTrader  – Recessions in gray bars

 

On the investment front:

  • The positive signs are  – the extreme volatility we experienced at the end of 2018 has subsided; corporate earnings for the 4th quarter of 2018 have been pretty good so far; and a more patient Federal Reserve has reduced the concern of interest rates rising too fast.
  • The negative signs are – February is historically weak month for equities; the stock market went from extremely oversold at the end of December 2018 to overbought at the end of January 2019; investor sentiment has gone from Fear at the end of 2018 to Greed right now; 2019 has had a similarly strong start to 2018  (Jan 2019 +7.8%, Jan 2018 + 5.6%), recall we had an 8.6% decline in stocks in February 2018.

S&P 500 by month:  1986 – 2018

Source: Strategas                                                                                                                                             source: CNN Money

 

Given the conflicting signals our outlook is cautious.  The fundamentals look okay, with solid corporate earnings, modest inflation, a strong labor market and a newly dovish Fed. The government shutdown will contribute to anemic GDP growth in the first quarter, but a snap-back is likely in the second quarter — as long as another shutdown is avoided. Stay tuned.

I hope this report proves informative.

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February Calendar of Events   (comments and additions for future months are always welcome)

  • February is Black History Month.  Let’s all strive for understanding and acceptance for people of all colors, nationality, and religions.

 

February  2nd                   Groundhog Day – rooting for no shadow

February 14th                  Valentine’s Day

February 18th                  Presidents Day

 

Sources: SentimenTrader, Strategas, CNN Money

 

 

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

 

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