Subject: 2019 3rd Quarter Newsletter
As always, let me start by thanking you for being such great clients and friends.
We are now done with seven and one-half months of the year and the stock market has had a good year so far from a performance standpoint. That doesn’t mean that it has been a smooth ride of late. On 8-14-2019 the Dow Jones Industrial Average was down 800 points. Believe it or not, most major equity indexes are roughly 6 to 7 % from their all-time highs as I write this. It seems to be the case that many people remember the bad days and years in the markets more clearly than the good ones even though the bad ones are less frequent based on historical data.
Issues such as a potential recession and fears of higher inflation, slowing economic growth and slowing earnings growth seem less imminent right now. The yield curve is inverting causing fears for some because historically that has indicated a recession is looming. In my opinion, governments all over the world are using monetary policy to stimulate their economies and in many countries interest rates are negative so the demand for US bonds is pushing down long term rates not economic slowing. The biggest cause of volatility in the market may be due to the actions of President Trump and how he is dealing with foreign nations, particularly China. Earnings have been better than expected, on the other side, GDP growth has exceeded expectations and inflation has been in check.
What a change in stance by the Fed since my last newsletter. The Fed decreased interest rates and is now acting very friendly towards the markets and may very well be looking to cut rates again this year and more next year.
It is my opinion that President Trump initiated more tariff talk forcing the Fed’s hand into lowering rates again in Sept. The President has wanted lower rates and has been vocal about it and looks to have figured out a way to get what he wants again. My guess is that after this Trump will move hard to do a deal with China and then will claim he beat the Fed and China and should be re-elected. Some feel China is waiting for the 2020 election, so they don’t have to deal with Trump. From my perspective, every day it seems more likely they will have to deal with Trump for another four years, forcing China to do a deal sooner rather than later. In addition, Mr. Trump often brags about the stock market returns and uses that often as a barometer for his success.
I believe a key investing concept is something often reported to financial advisors by investment companies but may be new to average investors. The concept is called the Upside/Downside Capture. This means how much of the upside of the market (S&P 500) are you capturing and how much of the losses are you losing. I run my portfolios with this in mind and to date. Considering the many issues Europe is facing, I continue to focus on equity and fixed income investments in the US market. Using investments that have lower volatility has been the strategy. In addition, I continue to favor growth over value thinking that sometimes value is value for a reason and the fact that these stocks are exhibiting very little if any growth in a slowing growth world they will continue as such.
As I said in my last newsletter, the adage, "Pigs get fat, hogs get slaughtered" cautions investors against excessive greed. I tend to agree and focus on to capturing profits when I think it appropriate.
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 am also focused on keeping credit risk to a minimum. My concern is that if we get closer to a recession, defaults could rise after many years of low interest rates have led to an all-time high in corporate borrowing.
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 as of 8-15-2019 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.
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