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Monday
Jul082019

Market Update for the Quarter Ending June 30, 2019

Presented by Sean Gross, CFP®, AIF®

Strong June leads to positive quarter for markets

June was a great month for stocks. The S&P 500 gained 7.05 percent, the Dow Jones Industrial Average (DJIA) returned 7.31 percent, and the Nasdaq Composite rose by 7.51 percent. We also saw gains for the quarter: 4.30 percent for the S&P 500, 3.21 percent for the DJIA, and 3.87 percent for the Nasdaq.

This positive performance came despite weakening fundamentals. The estimated earnings decline for the S&P 500 in the second quarter is 2.6 percent. Analysts project further declines in the third quarter before a return to growth in the fourth quarter.

Technical factors were another story. In May, all three major U.S. indices dropped below their 200-day moving averages, but they bounced back in June to close the month well above that trend line.

On the international front, the MSCI EAFE Index returned 5.93 percent in June, and the MSCI Emerging Markets Index returned 6.32 percent. For the quarter, the MSCI EAFE Index gained 3.68 percent gain, but the MSCI Emerging Markets Index gained just 0.74 percent.

Technicals for international stocks were supportive during the month. The developed and emerging market indices finished June above their 200-day moving averages.

Fixed income also had a positive June. The Bloomberg Barclays U.S. Aggregate Bond Index returned 1.26 percent. Falling rates throughout the quarter led the index to a quarterly gain of 3.08 percent. Similarly, the Bloomberg Barclays U.S. Corporate High Yield Index gained 2.28 percent in June and 2.50 percent for the quarter. High-yield spreads ended the quarter unchanged.

Economic growth: Slowing but still growing

Despite positive market performance, the quarter gave rise to concerns about economic growth. Only 75,000 new jobs were added in May, below expectations of 175,000. This number suggests job growth is slowing.

Both major measures of consumer confidence declined in June. Declining confidence indicates workers are starting to worry. Still, confidence remains at high levels and is not an immediate concern.

Slipping confidence hasn’t hit behavior or economic growth. Personal income and spending were up 0.5 percent and 0.4 percent, respectively, in May. Retail sales grew by 0.5 percent.

Businesses had a similar quarter. The Institute for Supply Management (ISM) Manufacturing index declined, reflecting manufacturers’ trade war concerns (see Figure 1).

Figure 1. ISM Manufacturing Index, 2014–Present

 

But business investment and output continued to grow. May’s industrial production report showed a 0.4 percent gain. Core durable goods orders grew 0.3 percent. The ISM Nonmanufacturing index was also positive.

Fed continues to support economic expansion

Monetary policy was another tailwind. Chairman Powell indicated the Federal Reserve would continue to monitor the effects of the trade war and said the Fed would step in with stimulative measures if necessary.

Market participants interpreted his comments as confirming the likelihood of a cut this year. As of quarter’s end, the market has priced in a 100 percent chance of a rate cut at the Fed’s July meeting. Another rate cut in October or December is also anticipated.

Inflation remains below the Fed’s 2 percent target. But with slowing job growth and trade concerns, a rate cut is possible and could be another tailwind for stocks.

Political risks remain

Political events rattled markets in May. First, the China-U.S. trade war escalated. Second, President Trump announced a 5 percent tariff on all Mexican goods, although that never took effect. On a positive note, June’s G20 meeting was drama free, and the U.S. and China committed to more trade negotiations. These developments calmed investor concerns and helped June’s positive performance.

Economic growth poised to continue

This was a positive quarter for the U.S. economy, which continues to grow. Consumers are willing and able to spend, and businesses are doing the same. Earnings declined in the first quarter and may again in the second quarter. But a return to growth by year-end should support long-term performance.

Lower interest rates should support faster growth. Mortgage applications surged once rates fell in June. If rates remain low, housing growth could return in the second half of 2019.

Markets had a great start to 2019. Positive returns for equities led all three major indices to double-digit year-to-date returns. That said, May’s declines show that despite the positive tailwind from a growing economy, market volatility can always arise. Thus, a flexible, well-diversified portfolio that matches your goals and risk tolerance remains the best way forward.

All information according to Bloomberg, unless stated otherwise.

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

                                                                                         ###

Sean Gross, CFP®, AIF® is a financial advisor located at Telos Wealth Management, LLC, 656 North Miller St., Wenatchee, WA. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Sean can be reached at 509-664-8844 or at Info@TelosWealth.com.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, senior investment research analyst, at Commonwealth Financial Network®.

© 2019 Commonwealth Financial Network®

Tuesday
Jun112019

Recession on the Horizon? Not So Fast

Presented by Sean Gross, CFP®, AIF®

Recently, the markets have experienced another round of volatility as the worries seem to be piling up. Tech stocks struggled on the news that Washington will be taking a hard look at regulating them. Concerns over a trade war continue to reverberate throughout the market. And the yield curve remains inverted, escalating fears of a more severe slowdown. Further, the Nasdaq moved into correction territory (i.e., a decline of more than 10 percent from the peak), although it has shown signs of a strong bounce (as of this writing).

Given these risks and market turbulence, is there a recession on the horizon? Let’s take a closer at whether this is a possibility—starting with the economy.

Economy is growing

Economic growth drives market returns. As long as the economy is growing, markets tend to do well. In fact, although there can be sharp corrections during expansions, they are usually short. We have seen this scenario with the pullbacks in 2011, 2015–2016, and 2018, where corrections were sharp but reversed quickly. Sustained bear markets (e.g., 2000 or 2008), on the other hand, occurred when the economy went into recession. As long as we don’t have a recession, markets should recover from recent weakness.

Hiring and confidence are solid

At some point, we will have a recession. But the signs indicate that it won’t be soon. We have never had a recession with hiring and consumer confidence as strong as they are right now, for example. Although we did see a pullback in both, we have since had a recovery—which is positive. With consumer spending making up more than two-thirds of the economy, it is hard to get a recession when both hiring and consumer confidence are solid.

Yield curve bears watching

Historically, when the yield curve has inverted, a recession has occurred in the following 8 to 18 months. That clock may have just started. In theory, then, we could have a recession early next year. Before that, though, hiring and confidence would have to decline (see the previous paragraph). The yield curve is something to watch but is not an immediate problem.

Confidence has weakened, but may bounce back

The weakness in business confidence and investment is concerning. But this worry is one based largely around the expanding trade war. Despite that, both sentiment and investment remain positive. Further, although we do see some weakening, there has not been a decline. Right now, that weakness would not be enough to take the economy down.

The economy is like an oil tanker: it moves and turns slowly. Markets are like speedboats, orbiting around the tanker. They move faster and can certainly rock more on the waves, but they follow the big boat. As long as the tanker is moving forward, so do markets.

Right now, the economy is still moving forward, which should continue to support markets. Much of the recent turbulence has come from the news, especially around trade, which has affected confidence. Lower confidence—and more uncertainty—is bad for markets and explains what we have seen recently.

Confidence can improve as quickly as it deteriorates, however, and we have seen that several times during the recovery. The most likely case is that confidence will improve again, as growth continues, albeit at a slower pace. Even if we do see more slowing and a pending recession, we will still have time to plan our next steps.

The real lesson

And that is what we should be doing: keeping an eye on the economy, the markets, and our portfolios. The real lesson of the recent volatility is that we need to be comfortable with the risks we are taking. If not, we should take steps to ensure that we are comfortable.

After all, at some point we will see a recession and a bear market and will have to ride them out. As such, we must be prepared for when they happen. It just doesn’t look like that will be in the immediate future.

Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.

All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.

                                                                                            ###

Sean Gross, CFP®, AIF® is a financial advisor located at Telos Wealth Management, LLC, 656 North Miller St., Wenatchee, WA. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Sean can be reached at 509-664-8844 or at Info@TelosWealth.com.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, at Commonwealth Financial Network®.

© 2019 Commonwealth Financial Network®

Monday
Jun102019

Market Update for the Month Ending May 31, 2019

Presented by Sean Gross, CFP®, AIF®

Markets hit turbulence in May

After four months of rising stock markets, we finally saw a decline in May. The S&P 500 declined by 6.35 percent, the Nasdaq Composite lost 7.79 percent, and the Dow Jones Industrial Average fell by 6.32 percent. Still, levels remain above where we were at the start of the year.

Declining confidence, not fundamentals, drove the pullback. According to FactSet, the first-quarter blended earnings growth rate for the S&P 500 stands at –0.4 percent. This result would represent the first quarter of year-over-year earnings declines since the second quarter of 2016. But it is better than the 4 percent drop forecast in March and the 2.3 percent drop expected at the start of May.

Technical factors were another story. All three major U.S. indices ended May below their 200-day moving averages. A prolonged dip below this line can indicate deteriorating investor sentiment and be a headwind for performance.

Global trade concerns also affected international markets. The MSCI EAFE Index fell by 4.80 percent, and the MSCI Emerging Markets Index declined by 7.22 percent. Both indices spent most of May below their trend lines, indicating that investors remain cautious about international investing.

Fixed income markets performed better. The 10-year Treasury fell from 2.52 percent to 2.22 percent. This drop led the Bloomberg Barclays U.S. Aggregate Bond Index to a gain of 1.78 percent.

High-yield fixed income had a challenging month. The Bloomberg Barclays U.S. Corporate High-Yield Index declined by 1.19 percent.

Economic data a mixed bag

In May, we saw improvements in consumer sentiment and spending. We also saw lowered business optimism and investment amid trade concerns. Still, the economy continued to show growth.

Rising consumer confidence led to increased spending. The University of Michigan consumer confidence survey hit a 15-year high before moderating. Plus, the Conference Board’s measurement of consumer confidence showed improvement.

Solid employment results bolstered consumer sentiment. The 236,000 new jobs added in April drove the unemployment rate down to 3.6 percent. Wage growth showed a 3.2 percent year-over-year increase.

Personal spending rose by 0.3 percent in April. This increase was supported by 0.5 percent growth in personal income over the same period.

Businesses feel weight of the trade wars

Worries over trade wars with China and Mexico drove much of May’s negative data. The Institute for Supply Management (ISM) Manufacturing and Nonmanufacturing indices fell during the month. The ISM composite index of business sentiment also dropped to its lowest level since October 2016 (see Figure 1).

Figure 1. ISM Composite Index, May 2010–April 2019

 

Business investment also declined. Durable goods orders in April fell by 2.1 percent, due to a decline in aircraft purchases. Industrial production also disappointed. Lowered utility production and a drop in manufacturing led to an overall decline of 0.5 percent.

The trade deficit widened from $49.4 billion to $50 billion in March, driven by imports increasing faster than exports. Economists expect this deficit widened further in April, on slowed export growth due to the U.S.-China trade war.

Despite the trade-related headwinds in the business sector, improvement in spending should help support growth.

Economy withstands rising political risks

Political risks drove the instability across markets in May. The U.S.-China trade war and the announcement of a 5 percent tariff on Mexican goods were the main culprits.

Markets are now priced for more bad news. Trade uncertainties remain, but the fundamentals suggest growth will continue. This growth should support markets and provide the foundation for a recovery if trade tensions resolve.

Big picture remains positive

Consumers are confident and willing to spend. Companies are expected to show improving fundamentals. Finally, markets are still positive year-to-date and remain above December lows.

There are risks, but the U.S. remains economically resilient and continues to show signs of growth. It is possible that May was just a bad month and not the beginning of a larger negative trend.

As always, a flexible, well-diversified portfolio and a long-term view toward investing remain the best way to meet financial goals in an unpredictable world.

All information according to Bloomberg, unless stated otherwise.

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

                                                                                       ###

Sean Gross, CFP®, AIF® is a financial advisor located at Telos Wealth Management, LLC, 656 North Miller St., Wenatchee, WA. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Sean can be reached at 509-664-8844 or at Info@TelosWealth.com.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, fixed income analyst, at Commonwealth Financial Network®.

© 2019 Commonwealth Financial Network®

Wednesday
May082019

Market Update for the Month Ending April 30, 2019

Presented by Sean Gross, CFP®, AIF®

Strong April for markets

April took U.S. markets to all-time highs. The Nasdaq Composite gained 4.77 percent, the S&P 500 returned 4.05 percent, and the Dow Jones Industrial Average rose 2.66 percent.

These results came from improving fundamentals. The S&P 500’s first-quarter blended earnings are anticipated to decline by 2.3 percent on a year-over-year basis (with 46 percent of companies having reported), rather than the 3.9-percent drop expected just a month ago. If earnings at the remaining 54 percent of companies also beat expectations to the same degree, there is the possibility for actual earnings growth for the quarter. This would be supported by revenue growth of 5.1 percent. Further, earnings are expected to grow throughout the rest 2019. Technical factors were also positive, as all three indices remained above their trend lines.

Internationally, developed and emerging markets had a strong start to the second quarter. The MSCI EAFE Index rose by 2.81 percent, and the MSCI Emerging Markets Index gained 2.12 percent.

Developed and emerging markets indices spent the month above their long-term trend lines. This technical support indicates investors may be getting more comfortable with investing abroad.

Fixed income had a positive month. The Bloomberg Barclays U.S. Aggregate Bond Index gained 0.03 percent. This rise came despite an increase on the 10-year Treasury bond yield from 2.41 percent at the end of March to 2.51 percent at the end of April.

High-yield fixed income also had a strong April. The Bloomberg Barclays U.S. Corporate High Yield Index returned 1.42 percent.

Economic news better than expected

April’s economic data was better than expected. The first estimate of first-quarter gross domestic product (GDP) growth came in at an annualized rate of 3.2 percent, against expectations for 2.3 percent. The details suggest this growth may not be sustainable. Still, the news was a boost to confidence.

Personal spending in March rose by 0.9 percent. Here, rebounding consumer confidence and healthy personal balance sheets allowed consumers to spend. Retail sales also beat expectations, with 1.6-percent month-over-month growth.

Businesses spent more during the month, as seen in the headline durable goods orders. This proxy for business investment grew by 2.7 percent, month-over-month.

Trade boosts economy

An improved trade deficit also drove faster growth. This improvement added 1 percent to the annualized GDP figure. This is one of the highest quarterly contributions from trade since the last recession (see Figure 1). So, this tailwind may not persist.

Figure 1. Net Exports of Goods and Services

First-quarter growth has historically been slower than the rest of the year but then tends to rebound. This trend is consistent with April’s improving data and will likely persist. If so, the economy may expand at a healthy rate, even if trade pulls back.

Political risks subside

Diminishing political risks reinforced strong market returns. In the U.S., a major concern was the Mueller report, but it had minimal market impact.

Internationally, Brexit had been worrying markets. The agreement to delay the deadline lessened the immediate risk. Markets had a positive reaction to this news. Likewise, the trade conflict with China continues, but markets believe progress has been made.

The immediate consequences of the political risks have subsided—along with the impact on consumer and business confidence. The pending debt ceiling confrontation looms, but the concern is not immediate.

Continued growth likely

With a solid first quarter behind us and confidence and the economic data improving, growth should continue to support market appreciation. Given this data and historical trends, we could see faster growth in the second quarter. Overall, the economy seems solid. This should support continued earnings growth throughout the rest of the year.

Concerns remain, especially politically. The solid economy and improving confidence put us in a good position to weather any turbulence. Risks and volatility can strike unexpectedly. A flexible, well-diversified portfolio constructed to meet your long-term goals remains the best path forward.

All information according to Bloomberg, unless stated otherwise.

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

                                                                                            ###

Sean Gross, CFP®, AIF® is a financial advisor located at Telos Wealth Management, LLC, 656 North Miller St., Wenatchee, WA. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Sean can be reached at 509-664-8844 or at Info@TelosWealth.com.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, fixed income analyst, at Commonwealth Financial Network®.

© 2019 Commonwealth Financial Network®

Friday
Apr052019

Market Update for the Quarter Ending March 31, 2019

Presented by Sean Gross, CFP®, AIF®

Strong March caps great start to the year

All three major U.S. equity markets were positive for March. The Nasdaq Composite led with a return of 2.70 percent. The S&P 500 and the Dow Jones Industrial Average (DJIA) had gains of 1.94 percent and 0.17 percent, respectively. For the quarter, the Nasdaq, S&P 500, and DJIA gained 16.81 percent, 13.65 percent, and 11.81 percent, respectively.

Market fundamentals worsened. The first-quarter earnings growth estimate for the S&P 500 fell from 2.9 percent to a loss of 3.9 percent. Analysts do expect positive earnings growth for the next three quarters, however.

From a technical perspective, all three major U.S. indices spent much of January and parts of February below their 200-day moving averages. But they ended the quarter above this important technical level.

For international markets, the MSCI EAFE Index gained 0.63 percent for March and 9.98 percent for the quarter. The MSCI Emerging Markets Index gained 0.86 percent for March and 9.97 percent for the quarter. Both indices finished the period above their trend lines.

In fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index gained 1.92 percent for the month and 2.94 percent for the quarter as yields declined and prices rose. The 10-year U.S. Treasury yield started the quarter at 2.66 percent and finished at 2.41 percent.

High-yield bonds, as measured by the Bloomberg Barclays U.S. Corporate High Yield Index, gained 0.94 percent in March and 7.26 percent for the quarter.

Economic growth slows—but continues

Only 20,000 new jobs were added in February, a sign that job growth could be slowing. Employment growth accelerated at year-end before falling in 2019 (see Figure 1).

Figure 1. Employment Growth, 2012–2019

Consumer confidence reversed its recent bounce to trend lower. A strong jobs market is a major driver of consumer confidence. Weakness here may be a worrying signal.

Consumer spending growth also pulled back. January’s personal spending report showed growth of 0.1 percent, and retail sales in February fell 0.2 percent.

The Institute for Supply Management Manufacturing and Nonmanufacturing indices, which measure producer sentiment, rebounded following declines in December and January.

Business investment grew, with durable goods orders increasing 0.3 percent in January. Business confidence appears to have rebounded from the year-end turbulence. Business spending continued to grow.

Fed responds to slowdown

In response to weak data, the Federal Reserve (Fed) indicated there would be no further rate hikes and that it will end its balance sheet runoff. First quarters have been weak over the past several years, only to rebound. So, the next couple of months are important.

The risks are subsiding

We avoided another government shutdown. Further, lower mortgage rates made buying a house more affordable, leading to increases in new and existing home sales in February.

Abroad, the Brexit negotiations appear deadlocked, although the deadline for a no-deal Brexit has been extended. A slowdown in Chinese growth could also affect markets.

A new risk is the yield curve inversion. After the Fed announced a looser monetary policy, yields on long-term government debt went down. This move left longer-term interest rates lower than shorter-term ones. As a result, the yield curve inverted, which typically signals a higher risk of recession. But this risk is likely for 2020—not 2019.

Strong quarter starts year off right

U.S. markets showed resilience in the first quarter. Economic growth has slowed but continues. There’s room for confidence to move higher. Finally, earnings growth disappointed, but analysts’ estimates for the rest of 2019 are positive.

Conditions may improve as confidence and spending catch up to 2018 levels. Further, lowered interest rates are generally supportive of faster growth.

The takeaway is that volatility can happen quickly. The past six months highlight the importance of creating flexible, well-diversified portfolios that can withstand short-term volatility.

All information according to Bloomberg, unless stated otherwise.

 

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

                                                                                              ###

Sean Gross, CFP®, AIF® is a financial advisor located at Telos Wealth Management, LLC, 656 North Miller St., Wenatchee, WA. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Sean can be reached at 509-664-8844 or at Info@TelosWealth.com.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, fixed income analyst, at Commonwealth Financial Network®.

© 2019 Commonwealth Financial Network®