Judging by the calendar spring is officially here. But the CT weather so far hasn’t cooperated much. So, my request is simple…spring, please hurry-up! I’m sure the weather will turn and things will start to warm, but the dusting of snow on our lawn on April 3rd didn’t help my mood. Let’s hope the turn is sooner rather than later. I hope you all had a safe and comfortable winter and are more patient than me waiting for spring. Enjoy it when it comes.
I am happy to announce that our advisor representative, John Seagrave, has been asked to join the Board of the Northwest CT Chamber of Commerce. John became involved at the Chamber very shortly after he joined our firm in March 2017. Since then he has been a near-tireless supporter of the Chamber’s programs and helped organize new ones. John is a young man with a bright future and we and the Chamber are happy to have his direct involvement. For more info on the Chamber check out their website at www.nwctchamberofcommerce.org/
Last Quarter Round Up
After a rough quarter at the end of 2018, the first quarter of 2019 was an almost complete reversal. The U.S. S&P 500 index was up +13.65%. The international market index was up +9.98% and emerging markets were up +9.93%. Bonds showed a nice recovery as well, with the aggregate index up +2.94% for the quarter. Short-term treasuries did reasonably well given their low level of risk at +0.99%.
December 24, 2018 was the bottom of the correction, down more than 20% from the previous peak. Then the market started on a V-shaped recovery through the first quarter. My view last quarter was that the market correction that started in early October 2018 was very similar to the correction we saw in late January 2018. But the economic fundamentals didn’t support it. Then the deeper correction that started in mid-December 2018 looked like a complete anomaly. The markets seemed reactionary and over-emotional and I feel the recovery in January and February proved just that. I suggested that investors not let emotion get the better of them, and that turned out to be wise counsel. The Federal Reserve (Fed) did not raise rates in March. The Fed now has a lower interest rate bias than it had in December when it last raised rates. This more dovish Fed attitude may seem good for markets, but it is worrying that the signs of slowdown or recession are building.
Current Quarter Outlook
Given the market plunge from last quarter and the strong recovery in the first quarter, we already have a good, positive year on our hands. Momentum has clearly been with stocks, and the U.S. is leading the pack. My sense is that there may still be some upside room for market returns, especially now that the Fed has this lower interest rate bias. But if I’m right that there is some upside, I don’t think it is a lot. We may not see the market highs from late September 2018 anytime soon. And, with interest rates not having an upward bias, bonds are more attractive than at any time in 2018. So, it’s not yet time to go defensive, but my guess is it may happen in 2019. Given this Fed bias I’m not sure we’ll see another interest rate increase in 2019, and there’s even a chance we could see a rate reduction. An interest rate reduction could play into the market reaction and delay the need to go defensive. Although the U.S. economy remains strong, it is not as strong as it was one year ago. I’m watching closely to decide when the upside potential no longer outweighs the downside risks. That will be the time to go more defensive.
My investment strategy is to reduce U.S. growth and add to U.S. value investments. I will continue to underweight international investments and overweight emerging markets. I will add to high-yield bonds and continue to underweight inflation protected bonds. I will continue holding equity long/short as an alternative as it was a big help during last quarter’s market volatility.
Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Connecticut Department of Banking.
This newsletter is for general information only and should not be considered investment advice. Investors should consult with a trained investment professional to discuss their particular situation.