Market Commentary

from our Chief Investment Officer, Chris Proctor

Economic growth is strong and the 2020 U.S. recession only lasted 2 months.
The government’s financial response to COVID exceeds that of World War II.
Inflation concerns causing challenges to bonds (and stocks).
Corporate earnings in Q1-20 were higher than expected boosting stock market returns.
Corporate earnings fell less and are recovering faster than any recession since 1950.
A stock market correction is possible if history is a guide but not certain.
Cryptocurrency creating more volatility than value.

Economy (GDP) is expected to grow at a rate of 3-4%.
Vaccine distribution will be a key driver to consumer confidence and economic growth.
Stocks hurt by COVID should perform better as the economy continues to “open.”
Technology continues to become more critical to businesses and households.
Non-U.S. stocks expected to broadly outperform U.S. stocks over 5-10 years.
Bonds should not perform as well as the past two years.
Low short-term interest rates will continue to “punish” savers in bank accounts and CDs.

Investing in the stock market over time is better than investing in a U.S. President.
Dividends and earnings are responsible for stock market returns over the long-term.
A small number of stocks have contributed to the S&P 500 returns in 2020.
The economy has improved however challenges (and opportunities) exist.
The Unemployment Rate took 4 ½ years to improve to the current level after the last recession ended in June 2009.
A vaccine(s) is the catalyst to continued economic expansion and higher stock prices.

The stock market is looking beyond the economic damage caused by the pandemic.
Consumer behavior is being tracked to monitor the anticipated economic recovery.
Timing the stock market has proven difficult. Some sophisticated investors have missed the rebound in stocks.
Remaining invested and optimizing portfolios has been a prudent strategy.

The following groups will receive some kind of financial relief:

China’s virus numbers are a great sign assuming their the data is valid.
Two potential scenarios are playing out – still too early to tell which materializes.
Your investment time horizon is paramount.
Portfolio adjustments are being made where appropriate.
Long-term investors will find opportunities in the short-term turmoil.

The S&P 500 index dropped over 10% since it peaked on February 18, 2020
The S&P 500 index was up over 36% from 12/26/18 through 2/18/20.
Corona virus impact potentially added to stock market valuation concerns.
Viral outbreaks have historically had only short-term impacts on the stock market.
The Center for Disease Control and Prevention (“CDC”) estimates that nearly 38,000 people on average died in the U.S. from influenza from 2010-2018.

Federal Reserve is expecting no changes to interest rates (up or down).
Recession seems unlikely except for some unknown “shock.”
Low unemployment creates a challenge for businesses as they struggle to find skilled labor.
Stock returns for the next 5 to 10 years are expected to average 4-6% per year.
Bond returns are expected to return 2-3% per year over the same time period.
Stock market volatility will likely be elevated due to the 2020 election cycle.
Since 1928, the S&P 500 has gained +12.9% (total return) during election years when the nation’s sitting president ran for re-election. Since 1928, the S&P 500 has gained just +4.5% during election years when the sitting president is not seeking reelection.

Consumers continue to drive economic growth.
YTD and one-year market returns look very different.
We continue to stress importance of using proper risk in your portfolios.
Geopolitical events cause short term market volatility that historically recovers in a matter of weeks, depending on the severity.
Economic growth in 2019 is still in line with annualized gains experienced since the economic recovery began in 2009.

June was an historic month for stocks!
U.S. economy is slowing but growing.
Corporate profit growth is expected to contract for the first three quarters of 2019.
The Federal Reserve is expected to lower interest rates this year.
Recession risk is widely discussed but likely avoided in the near term.
This month marks the longest U.S. economic expansion on record.

The US is currently experiencing the longest economic expansion since World War II.
As of March 31, 2019, the S&P 500 had its best quarterly performance since 1998. This follows December 2018 that was the worst December for the US stock market since 1931.
The US economy grew 3 percent in 2018 and is expected to slow but grow in 2019. Expectations for inflation are relatively low despite a strong labor market.
A US-China trade agreement, Federal Reserve interest rate policy, US corporate earnings, Brexit and global economic growth are some of the primary uncertainties that continue to affect daily market sentiment.
We have recently reduced or eliminated small cap stocks, natural resources and some international exposure to reduce volatility and ideally provide better downside protection if a meaningful correction occurs in the equity market.