DWM 2Q19 Market Commentary

Carnival Pic

Summer is finally upon us! Weather is steamy, kids are out of school, and it’s the midst of carnival season. Merriam Webster has several definitions of carnival including:

  • An instance of merrymaking, feasting, and masquerading
  • An instance of riotous excess
  • An organized program of entertainment or exhibition

Sounds a little bit like the markets we’ve seen in 2019 so far: it’s certainly been an entertaining program with all asset classes parading higher. But does this Fun House continue or is it all just a House of Mirrors….

Equities: You win a small prize! Equities continue to be the most festive part of the fairground, with many stock markets up over 2-4% on the quarter and now up around 12-18% on the year! Domestic and large cap stocks continue to outperform value and smaller cap stocks, which is typical of a late-stage bull market, this one being over a decade-long!

Fixed Income: You can trade in that small prize for a medium prize!  Like a Ferris Wheel where one side goes up, the other side comes down; yields and bond prices operate the same way. With the 10-yr Treasury now down to around 2.06% at the time of this writing compared to 3.2% last November, it’s no surprise to see strong returns in bond land. In fact, the Barclays US Aggregate Bond Index & the Barclays Global Aggregate Bond Index popped another 3.1% and 3.3%, respectively for the quarter and 5.6 & 6.1%, respectively year-to-date (“YTD”).

Alternatives:  You can trade in that medium prize for the largest prize! The merrymaking continues as most alternatives we follow had good showings in 2Q19, evidenced by the Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, up 1.3% and now up 5.7% YTD.

It almost feels like you could go over to the Duck Pond and pick up a winner every time. There are indeed a lot of positives out there:

  • US stocks near record highs
  • A stock-market friendly Fed
  • Historically low unemployment with inflation that appears totally under control
  • Americans’ income and spending rising, leading to relatively strong consumer confidence

But this carnival has some roller coasters in the making given some riotous issues including:

  • US-China trade tensions most likely not ending with a solid deal anytime soon, which will fuel anxiety
  • A weakening European economy due to tariffs and other issues, which could bleed over to all markets
  • Slowing US economic growth here as the Tax Reform stimulus wears off
  • A relatively expensive US stock market, evidenced by the S&P500’s forward PE ratio now at 16.7 times versus its 25-year average of 16.2

It definitely wouldn’t be fun if the yummy funnel cake turns into spoiled fried dough…Yuck! We don’t know exactly when or what will happen, but we do know that at some point this bull market will indeed end. You cannot time the market so forget about getting out of the Cliff Hanger before the time comes. That said, you want to stay invested and continue to control what you can control. Don’t wind up being on the bottom end of a Whack-A-Mole game; make sure your portfolio is prepared for the next downturn, which includes making sure your risk level within is appropriate for your risk tolerance.

So don’t wind up being a carny clown. If you want to continue hearing “winner-winner-chicken-dinner!”, work with a proven wealth manager and you’ll be the one controlling the Zipper!

 

Zipper