Broker Check

Letter To Our Clients

March 11, 2019

 

The S&P 500 Index has staged an impressive rally after nearly entering a bear market December 24, with U.S. stocks notching their best start to a year since 1991.

Stocks have climbed the “wall of worry” once again, but global uncertainty persists as the bull market nears its tenth anniversary. While the road to new market highs could get a little bumpy as investors deal with Brexit and China trade concerns, investors are encouraged to focus on the fundamentals supporting economic growth and corporate profitability in 2019.

Although recession calls have grown louder over the past several months, mounting evidence suggests that this economic cycle could persevere at least through the end of 2019. The U.S. labor market remains solid, U.S. manufacturing health remains in expansionary territory, and consumer sentiment is starting to recover. Leading economic indicators suggest there’s more runway in this expansion.

A pause in monetary policy tightening may also support U.S. economic health. The Federal Reserve (Fed) has indicated that it will abstain from raising interest rates further until there is more clarity in the global environment. That message has calmed investors’ fears that continued policy tightening could eventually smother future economic growth. Inflation remains at healthy levels; however, if there are signs of wages growing too rapidly, another interest rate hike may occur, possibly in the second half of this year, to help manage inflation. Even if this happens, slightly higher rates most likely won’t derail the economic trajectory.

Corporate profit growth should also support U.S. stocks, as earnings for S&P 500 companies grew last year. While the pace of corporate profit growth is expected to moderate, stock performance over the rest of this year is expected to at least match the mid-single-digit earnings growth anticipated for the S&P 500 in 2019.

Seasonality and momentum are also on investors’ sides. In 27 of the years since 1950, the S&P 500 has closed up in both January and February, and it has gained in the final 10 months of 25 out of those 27 years.

Though some early economic and interest rate forecasts have been lowered in response to a patient Fed and slowing global growth, the overall view hasn’t wavered. The pieces appear to be in place for a continued economic expansion, and stocks are expected to power through periodic bouts of uncertainty and occasional volatility.

If you have any questions, please feel free to contact me.

Sincerely,

John Galego

President & Founder, Atlas Wealth Strategies

 

 

 


Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.


 

 

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December 27, 2018


After a mixed first half of the year and a solid third quarter, stock markets weakened considerably in the closing weeks of 2018. Turmoil in the financial markets is never a pleasant experience for investors, and that’s why we rely on helpful guidance, context, and insight to help us weather these times and prepare for what may lie ahead. Indeed, LPL Research’s recently released Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets provides investors with a guidebook for navigating a maturing economic and market cycle.

Several factors are weighing on investor sentiment right now, including policy uncertainty regarding trade, weaker oil prices, the path of interest rates, and the geopolitical environment. Despite these pressures, the fundamental backdrop supporting growth in the economy and corporate profits appears to remain sound, suggesting that this market weakness may not lead to a recession in 2019. The U.S. economy remains solid and continued growth is expected to support solid potential stock gains in 2019.

Policy has been a prominent factor this past year, as the contribution from fiscal incentives including tax cuts, reduced regulation, and increased government spending helped boost growth. The combination of these trends propelled U.S. growth toward annual gains of approximately 3% (as measured by gross domestic product), and the stock market managed to achieve all-time highs during the third quarter. Policy uncertainty has increasingly weighed on investor sentiment, however, particularly surrounding the midterm elections and as trade tensions have continued to make headlines.

Anticipation was high for a tariff agreement between the U.S. and China at the G20 summit meeting. Although it concluded with a lengthier path toward progress than most had hoped for, continued progress is still expected in 2019. Oil prices remained weak after the announced OPEC production cut, as investors debated whether weakness was due to slowing global growth. Rather than a demand problem, oil appears to be a supply issue and thus not indicative of a recession, particularly now that the U.S. is the world’s leading producer. 

Perhaps the biggest policy uncertainty weighing on the markets has been the Federal Reserve (Fed) and the future path for interest rates. The Fed’s recent rate hike, coupled with reduced growth forecasts, added to investor concerns and further pressured stock prices. Considering LPL Research’s forecast of steady economic growth and lower than average inflation, the Fed may keep interest rates lower in 2019 than the markets currently fear.

Although market weakness can be alarming and cause investors to question their strategy, this is when we must focus on what matters in the markets and try to remain calm. The combination of high employment, solid consumer spending, improved trends for business investment, and mild inflation should result in a firm, fundamental foundation supporting growth in the economy and corporate profits in the year ahead.

As always, if you have any further questions, I encourage you to contact me.

Sincerely,

John Galego

President, Atlas Wealth Strategies


Important Information

For additional description and disclosures, please see the full Outlook 2019 publication.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

 

 

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