The first quarter of 2019 is in the books and fortunately for investors, a return to “normalcy” has occurred. Now “normalcy”, as used here, refers to the penchant for stocks to march deliberately higher and bond yields to stay stubbornly low. Last quarters brutal sell-off in equities is but a distant memory and Pollyanna has returned.
While I’m thrilled with the rebound in asset prices I’m not sure the markets aren’t wishing upon a star at this stage in the economic cycle.
On March 28, 2019 the final reading for 4th quarter 2018 US Gross Domestic Product was up 2.2%, with the growth for all of 2018 at 2.9%. Consumer and government spending were revised down in the report. On March 26th, the Consumer Confidence Index declined from 131.4 in February to 124.1 in March. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – decreased from 103.8 in February to 99.8 in March. Just today, the Institute for Supply Management non-manufacturing index declined in March, to the lowest level since August 2017. Clearly, the US economy is slowing. However, I believe we maintain growth at roughly 2% per year.
The global economy is also showing signs of slowing. Much of this is, I believe, attributable to 2 big geo-political unknowns – the US/China trade negotiations and the United Kingdom leaving (or not) the European Union. These types of unknowns bring business investment in hiring, new equipment, and new product development to a halt. Getting these two issues resolved, hopefully in a positive fashion, will provide a boost to global growth. Alternatively, a breakdown in the US/China trade deal and/or a negative outcome in the UK would likely increase the odds of a global economic slowdown.
On the investment front, I am most concerned about corporate earnings, which start reporting on April 14th. Corporate earnings growth slowed dramatically in the 4th quarter of 2018, and could even turn negative for the 1st quarter of 2019. While the stock market is aware of this, I’m not sure it has priced it correctly. If 1st quarter earnings are better than expected then the market probably continues its upward bias. If earnings are worse, then I expect the market to experience a selloff, albeit not as dramatic as what we saw at the end of last year.
Overall, I remain optimistic but cautious. We have some tailwinds – low interest rates and inflation, a steady job market and slowly rising wages, but there are risks that are hard to quantify – political uncertainty and trade tensions. We will continue to monitor the situation and adjust accordingly.
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April Calendar of Events (comments and additions for future months are always welcome)
- April is National Autism Awareness month. Let’s all get educated on this issue and works towards acceptance and inclusion of people dealing with autism.
- April is also National Financial Capability month. We at Directional Wealth Management commit to equipping individuals to lead better financial lives through an integrated framework of educational resources, collaborative tools, and personal one-to-one advice.
April 10th Christian’s wife Maecy birthday
April 12 & 13th We adopted our 4 legged children Coco (2010) and Buddy (2013)
April 15th Tax Day. Remember to make those IRA or Roth contributions.
April 20th Passover begins – Chag Pesach Sameach
April 21st Easter Sunday – Have a blessed and Holy Easter
April 22nd Earth Day – let’s all recycle, turn out lights when we leave rooms, and do all we can for our environment
April 24th Administrative Professionals day – remember your staff
April 25th My daughter Satya’s birthday – wow she is turning 35! I must be getting old 😊
Sources: JPMorgan, Nottingham Advisors
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