As always, let me start by thanking you for being such great clients and friends. We are now done with 4 months of the year and the stock market has had a good year so far from a performance standpoint.
All 3 of the major stock indexes are either very close to or above their all-time highs.
Issues such as a potential recession and the potential for higher inflation, the inverted yield curve, slowing economic growth and slowing earnings growth seem to be off the table for now. Earnings have been better than expected, GDP growth exceeded expectations and inflation has been in check. The geopolitical issues such as the trade wars and tariffs with China seem to be behind us for now, as we are hearing that a deal with China is close. The multitude of issues surrounding President Trump also seem to be less worrisome after the Mueller report was disclosed.
As I said in my last newsletter, The Fed has changed its posture and recently announced that no new hikes are in store for this year. The Fed is now acting very friendly towards the markets and the biggest worry, inflation, seems less threatening. This should allow the Fed to keep interest rates low which is helpful for the economy and stocks.
Last month I said the following in my last newsletter. It seems I was correct so far on earnings and GDP. Earnings have been reported higher than originally forecasted, 1st quarter GDP was higher than expected and recession predictions are being pushed out into the future.
“In spite of this, economic growth is still at a higher level than in years past. Earnings are still up, unemployment is near all-time lows, wages are rising, and the consumer is spending. Furthermore, I don’t believe that there is a recession coming anytime soon. In fact, historically when the yield curves invert, a recession usually occurs 18 to 24 months thereafter. Inflation is not out of control, with the price of housing coming down. Even though interest rates have moved higher (but not yet at a historical point), it seems to me that investors have yet to come to the belief that they will compete with equities. I also believe valuations have come down to levels that are very reasonable on a historical basis especially considering the growth rates that many companies are still exhibiting.”
I continue to focus on equity and fixed income investments in the US Market, considering the many issues Europe is facing. These include Brexit, slowing growth or recessions and political instability. I do find Emerging Markets are interesting because of the sell off last year, but I still feel the US offers enough opportunity to avoid adding additional risk by investing in Emerging Markets. I continue to favor growth over value and believe that in a slowing growth environment, real growth has the potential to be rewarded.
I am also seeking to reduce risk. I have been looking for and adding investments historically that tend to be less volatile in an effort to better manage losses if there is a sell off. The old adage, "Pigs get fat, hogs get slaughtered" cautions investors against excessive greed and I tend to agree. As for fixed income, I still want investments that have relatively low interest rate risk as I am not willing to take a lot more risk for a little more potential yield.
I continue to evaluate my clients' investments to help make sure they are in line with their objectives, risk tolerance and time horizon.
Thank you very much. I look forward to seeing you all soon.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is not intended to be used as a primary basis for investment decisions and should not be construed as advice meeting the particular investment needs of any investor. The information presented does not constitute a solicitation for the purchase or sale of any security. When considering the performance the US market performance, we considered the S&P 500, Dow Jones Industrial Average and NASDAQ Composite Indexes. The indexes are unmanaged and cannot be directly invested into. Investing involves risk and the potential to lose principal. Past performance does not guarantee future results.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Investing involves risk and the potential to lose principal.
International investing is not suitable for all investors. International investing involves increased risk and volatility due to potential political and economic instability, currency fluctuations and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging and developing markets. Please consult with your financial advisor prior to making investment decisions. 06/19
Jordan Kerner
Financial Advisor, Waddell & Reed, Inc.
Office: 475-619-2240 | Cell: 917-301-7274 | Fax: 203-557-6262
www.jordankerner.wrfa.com | jkerner@wradvisors.com
495 Post Rd E Ste 209| Westport, CT 06880