2019 Mid-Year Investment Outlook/Market CommentarySubmitted by Jodi Vleck , Beta Wealth Group on January 18th, 2019
BetaBrief: Our Current High Level Market Thoughts
THE YEAR THUS FAR
In what has been arguably one of the biggest market reversals in recent years, both US and International Markets have changed course through the first half of 2019, from the fourth quarter of 2018. On the back of the Federal Reserve’s decision to put interest rate increases on hold, optimism around the eventual resolution of US-China trade talks and in the face of widespread skepticism, the outlook changed positively for the markets and to a certain extent, the world economy. Through the end of June, markets have recorded one of the best starts to a given year, with US markets once again trumping the performance of International markets.
With the Fed hitting the pause button, we may have just extended the current cycle, which is now entering the 11th year and already the second longest on record. In concert with the Fed, Global Central Banks have also been in easing mode, with the European Central Bank suggesting the likelihood of negative rates through the end of the year, China continuing to inject stimulus and the Bank of Japan executing its own asset purchase program. However, many late cycle conditions have been in play, including slowing global economic growth worldwide and decelerating earnings growth.
Exhibit 1. An About Face In the Trajectory of Markets and the Worldwide Economy
CONCLUSION - STAYING INVESTED BUT WITH CAUTION
As we enter the 11th year of the current cycle and with markets at peaks especially in the US, we believe it is prudent to be cautious but stay invested heading into the second half of 2019 while keeping in mind that the third year of a Presidential term has historically been one of the stronger years.
While one of the key recent questions on investor minds has been whether we are heading toward a global recession, which is always a coin flip prediction at best, we believe growth could slow through the rest of the year if there is an escalation in tariff wars, as Global PMI trends seem to suggest. We believe US markets range between fairly valued to slightly overvalued, while International markets are cheaper thus spelling opportunity especially in Emerging Markets. As we communicated recently through many of our Monthly Portfolio updates, we stay biased toward high-quality equities with strong earnings growth, robust balance sheets preferably with a consistent history of dividend growth, favor adding duration in Fixed Income now that rates seem headed lower and prefer adding selective private investments in categories such as Private Real Estate, Private Credit and Global Infrastructure.
Exhibit 2. Staying Invested But Remaining Cautious
Left display through March 31, 2019; right display is from January 31, 2000, through March 31, 2019.
Source: Hedge Fund Research, S&P and AB
As always, email or call us with any questions.
Jodi Vleck, CFP® Giri Krishnan
CEO, Wealth Manager Senior Portfolio Manager