Linda S. Parenti, CFA
President & Chief Investment Strategist
As we begin the new calendar year, stock investors are likely hoping they will not see a repeat of 2018! Although we did get a very welcome Santa Claus rally at the end of the month, December was especially difficult for equities and brought returns into negative territory for the year. Including dividends, the S&P 500 ended the full year with a decline 4.4%. In hindsight, that percentage decrease may seem surprisingly small considering the year’s bouts of volatility in the first and fourth quarters.
Wall Street analysts have become anxious about slowing global growth, and they are looking for any signs of recession ahead. The continuation of the partial government shutdown, ongoing trade concerns, hard Brexit worries, and recent Federal Reserve rate hike only add to the unease. Yet, recent economic data releases have not been that disappointing. Housing starts, permits, existing home sales, and retail sales have all been better than expected. Consumer confidence declined but is still high, and consumer spending is also healthy. In addition, weekly jobless claims continue to show robust employment trends. While there is evidence of slowing growth in some areas both here and abroad, it has not ceased. At current levels, stock valuations are once again attractive even with lowered expectations for earnings in 2019. The upcoming earnings season should provide more clarity on forward earnings expectations.
Investing takes a long-term perspective and certainly perseverance. Contrary to the impression you may have from the financial media, by traditional measures we have experienced a correction within an ongoing bull market. Still, it may be reassuring to know that the average bear market lasts about 1 year versus 4 ½ years for the average bull market. Even though we do not anticipate this is the start of the next bear market, that does not mean we are not prepared. In order to weather unexpected market volatility, we continually rebalance our clients’ asset allocations, keeping them aligned with their specific risk tolerance and cash flow needs. As intended, our clients’ short-term fixed income and cash positions are providing a positive buffer against the stock market’s recent volatility.
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.