My adopted Commonwealth of Virginia continues to weather two storms…one political storm that has made national news, and one of consistent, unrelenting rain. The rain has saturated the ground, and the politics has saturated the human spirit, and both of which cause great concern. Virginia is an incredibly beautiful state, with beautiful people, that needs much sunshine right now.
Sunshine continues to shine on the U.S. Stock Markets in 2019. The Dow Jones Industrial Average stock index increased for the 9th week in a row this past week, something that has not been seen since 1995. Is this stock market growth economic reality based on corporate and economic fundamentals, or simply an overswing of the investor optimism pendulum as a reaction to the oversold positions weathered by the stock indexes prior to Christmas? It is pretty well documented that the 2019 year-to-date rally in risk assets is largely being driven by optimistic investor expectations that rate hikes by the US Federal Reserve (Fed) will be on hold this year, and that a trade agreement between the US and China will be reached soon, lowering overall global economic trade risk.
On the subject of the Fed Rate increases for 2019-we have Chairman Powell stating in February that the current rates are very close to, but still below, what he perceives as a neutral rate, leaving open the possibility of a future increase if the economic data requires; while voting FOMC Board St Louis Governor Bullard has come out on the major financial stations this past week calling for no rate hikes, and possible rate reduction(s) in 2019, due to what he sees as declining economic values-but, NOT a recession. On the subject of China – USA trade talks, we can all agree that a formal normalization of trade and an intellectual capital agreement between the two largest economic entities on the planet is a very good thing. The question remains, is China being forced to move on the tariff front because of it’s declining internal economic conditions which may be detrimentally affecting its newly formed middle class?...and, what effect will this potential China growth decline have on overall global economic/trade activity?...in addition to the potential global economic headwind effects due to the upcoming Brexit split from the European Union. These headwinds may be lessening as there are now calls for a vote on delaying Brexit beyond the existing March deadline for further negotiations.
So, with all this said…stay well within your risk tolerance…understand your portfolio defensive positions, and be prepared to rebalance your asset allocations…whether the market continues its bull growth…or…should volatility produce a stock market decline/correction that once again plays havoc with your portfolio. This is the best offense, and defense, in either scenario. Personally, I continue to be cautiously optimistic, and while I expect to see declining levels of growth in 2019 – leading to slower US GDP growth, we can expect to see continued economic GROWTH; and with that growth we may see a continued increase in the stock market indexes to new index higher highs during this year. (1)
With 88% of S&P 500 companies having reported, fourth quarter 2018 year-over-year earnings growth is tracking to +16.3%, marginally above prior estimates. Energy has produced the biggest upside surprise for the quarter among the S&P sectors, followed by communication services.
Have a brilliant and Blessed Week!
James Anthony Pavik Sr.
President & Chief Wealth and Investment Officer
ChFEBC℠ Chartered Federal Employee Benefits Consultant
Pavik Wealth Management Inc.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and may not be invested into directly.