2019 First Quarter RecapApril 9th, 2019 by Anchor Bay Capital's Investment Team
1st Quarter Market Commentary
by Scott Spiering, Founder and Chief Investment Strategist
Coming off its worst quarterly performance in 7 years the S&P 500 made a substantial rebound from December 2018 lows. The rebound is being largely attributed to improving expectations for a trade deal with China and the end of tariffs. The Fed’s “dovish pivot” helped the S&P 500 register its best quarter in ten years.
In March the yield curve inverted for the first time since 2007, with the yield on the 3-month Treasury Bill higher than the yield on the 10 year Treasury Note. With moderating economic growth, benign inflation and low unemployment, the Federal Reserve indicated in March that it expects a relatively long delay in further rate hikes. Fed Fund Futures are now pricing a 64% probability for a cut by this December.
For the first two months of 2019 equities were the place to be, but then in March the fear of a recession raised its ugly head as the treasury inversion extended further out the maturity curve. In March Fed Chairman Powell put the Fed on hold. As a result interest rate expectations have fallen while the market is pricing a cut by the end of the year. That is good news for the stock market, as rate cuts usually support stronger returns for equities.
Investment Strategy and Outlook
by Jonathan L. Chatfield, CFA, Senior Portfolio Strategist
At this time the yield curve inversion is very minor and has not yet caused us to be overly concerned about a potential recession. The inversion has not been in place for a full quarter, and it could reverse depending on changing economic conditions. At this writing the 10-year yield is now back above the 3-month yield, while the 2- through 7-year rates are below. Increases by the Fed have pushed up short term interest rates while expectations of slower growth, due to slowing economies overseas and the late stage of the current economic expansion, have pushed longer-term rates down. A recession is not yet baked into the forecast and we continue to see opportunities in equities.
Although we are in the late stage of the business cycle, inflation remains low. Low unemployment and wage pressure has not yet had a significant negative impact on corporate earnings therefore our outlook for equities remains favorable. The recent pause in Fed rate hikes generally supports further economic and profit growth. We also see opportunity overseas, especially in the emerging markets and have adjusted our exposure to non-U.S. markets to reflect our outlook.
We will continue to monitor economic conditions and if the inversion or growth slowdown becomes more pronounced we expect to take the appropriate steps to reduce risk exposure in the portfolios.
James R. Allen, CFP, ChFC
Jim has finished his transition and is now actively engaged in preparing financial plans for Anchor Bay clients. Financial planning is an important tool to develop long term financial goals and to be sure your investment portfolio lines up with your goals and tolerance for risk. Be sure to take advantage of his services and call for an appointment today.
Jonathan L. Chatfield, CFA
Jon has returned to Anchor Bay and currently serves as our Senior Portfolio Strategist and CFO. He previously served as Portfolio Manager for over four years. Jon is always available to discuss your portfolio and our investment outlook.
Danielle has been with us over a month now and she has taken on many client service responsibilities. Call her any time for assistance with your accounts or to make an appointment meet with us.