Vigilare Wealth Management Q1 2019 Commentary
Markets rebounded sharply in the first three months of 2019. A recap from our prior quarterly commentary: “Recessions usually lead to deeper and prolonged bear markets. For this reason, we should have a balanced approach, vigilant in diagnosing economic conditions. Economic recessions are usually triggered by: 1) Commodity shock, 2) Overzealous Fed, 3) Bubble/Systemic risk. As many economists say, expansions do not die of old age, they are murdered. Markets have experienced similar drawdowns to 2018 on many occasions (1987, 1994, 1998, 2011, 2016 to name a few) in which there were quicker rebounds and where no recession occurred. We will be paying close attention to leading indicators of economic data for clues of recession…. The month of December saw a record exodus from equity funds and extreme lows on investor sentiment, both of which are historically reliable contrarian indicators. We anticipate a strong market rebound in 2019 if we can get though some of these prevailing market uncertainties.”
We still feel strongly about our earlier comments. Most data points to continued economic expansion, especially with a recently more “dovish” Federal Reserve pausing (yielding?) on further rate hikes. Market-based probability estimates on additional rate hikes in 2019 is currently at 0% while the probability of a rate cut in 2019 is now over 50% (ask us about the recently inverted yield curve which we brought up a few commentaries ago).
If prior historical examples provide accurate comparisons, there is a possibility of more runway for this economic expansion and market advance (E.G. 1988, 1995, 1998). As always, we do have to remain vigilant. Where the markets had priced in a gloomy outcome in December (and nothing happened), valuations are now in line with a much more optimistic outlook. We have uncertainties around trade/tariffs which are still unresolved and global growth has slowed considerably in the last few quarters (China had the slowest growth in 2018 since 1990 and Brexit is still lingering). Although bullish, there is much that could go wrong and quickly derail the current expansion. All eyes on the data, especially leading economic and market indicators.
Thank you for your Trust.
The Vigilare Wealth Management Team
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