Broker Check

Letter To Our Clients

April 4, 2019

 

April brings showers, baseball, and historically, the best month of the year for the S&P 500 Index (for the last 20 years).  On top of that, the S&P 500 had its best first quarter since 1998, and in March we celebrated the 10-year anniversary of the current bull market.  Although the U.S. economy hit a soft patch to start 2019, the fundamentals supporting economic growth and corporate profits lead us to believe the bull market and economic expansion could continue.

While stocks rallied in the first quarter following the sharp December decline, expectations for first quarter gross domestic product (GDP) appeared to dampen and stand at about half the pace that it did last year.  Slower GDP growth was due mainly to lingering effects from the government shutdown, bad weather, U.S.-China trade tensions, and slower growth overseas - particularly in Europe.  The good news is these temporary headwinds are expected to clear, setting up a potential pickup, albeit slower, in economic growth in the second quarter and beyond.  In addition, the U.S. consumer spending outlook remains solid, buoyed by continued gains in employment and wages.

A U.S.-China trade deal, a persistent roadblock for business spending, could be finalized in the coming weeks or months, which should help business confidence and spur capital investment.  At the same time, last year's package of additional government spending of roughly $300 billion is still giving the economy a boost.  Together, these bode well for an increase in business investment, which tends to lead to greater productivity and profit growth, keys to extending this economic expansion.

Signals of weaker growth from the bond markets have not gone unnoticed, yet we see these more as evidence of an aging business cycle and something we expect as we enter the later stages of the cycle.  Parts of the yield curve inverted briefly in March, which means long-term interest rates fell below short-term rates, and some consider this movement a harbinger of recession.  While this garnered a lot of media attention, the inversion was very small and short-lived, and the attention may have been a little overblown.  For its part, the Federal Reserve made a point to reiterate its pause on interest rate hikes to help support market sentiment during its March meeting.

Like April showers that bring May flowers, we maintain our positive outlook for 2019.  But that does not mean a storm or two might not also come through in the form of increased market volatility.  We do think stocks will be higher at year end than they are now, despite weathering potentially slower economic and earnings growth.  We expect U.S. growth to stabilize and slow slightly, and that inflation may creep higher as the risks subside.  Overall, we still see plenty of evidence that solid U.S. fundamentals are firmly planted and a recession is unlikely on the near-term horizon.

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.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

To the extent you are receiving investment advice from a separately registered independent advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.


 

 

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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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