Is This Growth Sustainable

01 January 2019
Market Insights

Markets: Major stock markets have come roaring back in early 2019. US stocks are up over 14% YTD and over 22% since the Christmas Eve market low. International stocks are right behind, up over 11% for the year. After a strong Q4, US bonds have had a more muted start to the year as interest rates have leveled off. On a YTD basis, US bonds are up a little over 2%.
Economy: The US economy grew at an annualized rate of 2.6% in Q4. Analysts predict a growth rate of 1.7% in Q1 2019. If that prediction holds true, it will mark the 3rd consecutive quarter of lower growth. Housing has also begun to slow. January’s reading on existing home sales fell to its lowest level since November 2015. The unemployment rate remains well below the historical long-term average at 3.8%.
Headlines: The two main stories that have dominated the financial news outlets over the last few months have been the US – China trade negotiations, and the change of tone at the Federal Reserve regarding future monetary policy. While the US – China trade headlines have seemingly moved the markets on a daily basis, we are much more focused on the actions of the Federal Reserve and other central banks around the world. The stock market rally, that began in late December, seemed to coincide with the Chairman of the Federal Reserve, Jerome Powell, indicating that the Fed may take a more accommodative approach in 2019.

Our View: We expect volatility to return to the markets in 2019 with potential for larger downside moves. While some economic factors, such as unemployment and wage growth, remain strong, we believe the economy is beginning to moderate as cracks are starting to show in housing, corporate earnings growth and other areas. We find it interesting that global central banks are, once again, moving toward more accommodative policy in an effort to stabilize and boost the economy. Our concern is that the “easy money” policies that the central banks began over ten years ago to pull the global economy out of the great recession, have gone on for too long and have allowed for significant expansion of credit markets. Today, higher levels of debt can be seen on corporate balance sheets, at all levels of government and certain areas of consumer borrowing. While debt is a necessary part of a growing economy, it can also create more pain when and if the economy stumbles.

We believe a cautious stance is prudent in the current environment. It is important to have liquidity for any expenses that are likely to occur over the next 12-24 months and remain invested in a diversified portfolio for longer term planning goals. As always, we appreciate the confidence that you have placed in us as your trusted advisor, and we welcome your questions or comments at any time.

Important Disclaimer

JPS Financial, LLC is registered as an investment adviser with the Securities and Exchange Commission and only transacts business in states where it is properly notice filed or excluded or exempted from such filing requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.

Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors on the date of publication and are subject to change. The information presented does not involve the rendering of personalized investment advice and should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities discussed. All investment strategies have the potential for profit or loss.

Investment Decisions