Q1 2019 Economic and Market Perspective

With Q1 behind us, our humanity has led to the perception of much smoother sailing moving into Q2. However, we believe this is all relative. In December 2018, panic ensued following the longest shutdown in government history in anticipation of the US-China trade deal. Index performance was the worst the market had seen since the 1930’s and served to close out one of the most volatile quarters in the 21st century. Historically speaking, we had every reason to believe the market would recover in Q1; but still our humanity got the best of us. Simply put, when things looked bad, investors were scared.

History proved accurate with a significant recovery in Q1. The US led global stocks with a 14.0% increase, their best performance since 2009. International markets trailed behind, up by 10.4% to round out a total 11.2% rise in the global stock market as a whole. The S&P 500 began 2019 strong with a rise of 7.87%, led by Information Technology and followed by Real Estate. Industrials, Health Care and Financials both underperformed at less than a 10% increase but still rallied after the drop of Q4. Following the long-awaited end of the government shutdown, GDP growth estimates grew to 2% and wages continue to rise at a steady 3.4% to support the drop in unemployment at 3.8% (stats via Personal Capital Corporation). In relative terms, things are looking good, so investors are happy- for the time being.

As professional investors, we opt to take the road less traveled and resist falling into the vicious cycle of being emotionally manipulated by market volatility. To us, keeping an even keel is critical in implementing plans that will be conducive to short-term, intermediate, and long-term solutions. For example- when we enter the workforce, we allocate a percentage of our paycheck to immediate necessities such as food, housing, and transportation. Often another percentage will go to a “savings” account for things we might need later, such as if we decide to move or need to buy a new car. We will also most likely have some sort of long-term retirement account (ROTH IRA or 401K) to take care of us in the future.

This mindset is what keeps our worries at ease when taking the recent bond yield curve into account. Stocks took a dip at the end of Q1 when one of the greatest predictors of a recession came into play: an inverted yield curve. Investors determine interest rates as a projection of what they believe is to come for the economy, so typically interest rates on long-term debt yields will be significantly higher than short-term debt yields. When there’s an inverted bond yield curve, investors have decided that the short-term market poses more risk (and therefore demand higher interest) than the long-term market: not something the economy likes to see. As I’ve mentioned before, jumping to the conclusion of an impending recession can prove to be counter-productive, and we encourage investors to resist the urge to let emotions guide where you go from here. If a recession is on its way, now is the time to evaluate your portfolios and determine your risk tolerance going forward.

Looking ahead, investors should settle into “The New Normal” as the volatility of the market is expected to continue. While the Fed is expected to go the duration of 2019 without raising interest rates, there are, as always, a multitude of factors that can cause the stock market to rise and fall respectively. We encourage you to stay informed and understand that this is the nature of the beast. This is why we create customized investment plans and can modify based on your needs, or on current and past market trends.

For further information please email: Info@Nashvillepwm.com