FINANCIAL TIP FROM DAVID:
When the Crystal Ball is Cloudy
As we approach the end of April, the markets have had a very good beginning to 2019. Most major indices have climbed back to the levels they obtained at the end of the 3rdquarter last year. We all remember the swift fourth quarter drop fueled mostly by interest rate fears as well as sentiment that we would start to see corporate profits decline year over year. The interest rate fears were alleviated by the Fed Chairman in late December and the fear of earnings declines was eased as the first quarter resulted in continued earnings growth. We have also seen the bond markets rally as the ten year treasury has fallen from over three percent in late 2018 to two and one-half percent today. While it’s nice to have rebounded from the December lows, most of us are always focused on what is yet to come.
We always jokingly state that our crystal ball is cloudy when asked about our thoughts on what markets will do going forward. But there are many factors that we consider when contemplating where markets may go. The biggest concern we tend to have is identifying the catalyst for growth going forward. If companies are not able to grow their profitability, then ultimately their stock prices will suffer.
The IMF has already reduced their estimates of growth in the US and the Eurozone. China was also expected to slow down but the Chinese government stepped in with stimulus programs to spur growth. Thus as we approach the end of April, global growth concerns are real and, we believe, pose the biggest risk to continued market gains. The two main areas we are monitoring are growth outside of the US and China and the seemingly never ending trade talks. Either of the two resulting in positive news can be the catalyst for continued market rises. Consequently, if either moves in a negative direction, there will be pressure for stocks to fall.
Many investors express concern that we are currently in the longest bull market in US history. This fact leads many to believe that we are not far from a market decline. An old Wall Street adage is that bull markets do not die from old age. Bull markets are mostly ended by extreme valuations, interest rate hikes, and commodity spikes. None of those three factors are performing in a way that would negatively impact the markets at this time but will continue to attract our focus as we move thru the year.