August 2019 Client Letter

August 1, 2019

Dear Valued Investor:

This summer has been interesting. Thus far, temperatures have been at a maximum for much of the country, while typical summer storms have been at a minimum. A parallel can be drawn for the financial markets: Major stock indexes are hovering near record levels, while other asset classes like bonds and gold have also participated in gains with little volatility in recent weeks.

In a normal economic environment, stocks, bonds and gold typically do not experience simultaneous growth. But, these are not normal times:  Domestic economic growth is steady, global demand is weakening, trade uncertainty prevails, and central banks around the world are once again lowering interest rates—more than 10 years after the economic and financial crisis!

Indeed, the U.S. economy has exhibited trend-like growth around 2.5% for the first half of 2019. Despite weaker business investment due to trade uncertainty, growth has been supported by a fully employed consumer. These trends have led activity in the developed world, where Europe struggles with Brexit, and Japan, where demand is wobbly ahead of the looming consumption tax. Yet global investors have found favor with risk assets. Is this a sign of confidence in global economic activity? Or is it reflective of a mindset that believes the world’s central banks will come to the rescue again, lowering rates to boost global demand and support asset prices?

While we’d like to believe it is due to confidence, we suspect it is more of a mindset. For example, the U.S. Federal Reserve just reduced interest rates by one quarter of a percentage point (0.25%), and indications are that at least one more rate cut is coming before year-end. The European Central Bank and the Bank of Japan also have committed to more accommodative policy actions. Lower interest rates can boost economic activity by reducing financing costs for home and auto loans, while also factoring into improved valuations of financial assets.

Unfortunately, the uncertain international trade situation has caused businesses to limit investment, pressuring global growth. Until clarity on trade emerges, markets will probably focus on decreasing interest rates, rather than increasing activity. This may lead to temporary bouts of volatility, potentially weighing on asset prices and investor sentiment.

It’s important to continue to focus efforts on the underlying fundamentals supporting economic activity—and remember that while the economy is slowing, it is still growing. Solid economic prospects can help keep corporate profits afloat, especially if there is progress in U.S.-China trade talks and rebounding global activity.

Please contact me if you have any questions, and enjoy the rest of the summer.

 

Sincerely,

Wayne Rigney

 

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

All data is provided as of August 1, 2019.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking #1-878588 (Exp. 08/20)

 

July Client Letter

July 3, 2019

Dear Valued Investor:

Happy Birthday, United States of America! As we celebrate our nation’s birthday, U.S. leadership on the world stage remains in focus. We received good news on the global trade front from the recent G20 Summit in Japan. President Trump and China’s President Xi agreed to a trade truce, clearing the way for the two nations to resume negotiations—and helping the stock market add to its impressive first half of 2019. In signs of thawing tensions, the next round of U.S. tariffs have been suspended indefinitely, and U.S. companies were cleared to sell certain products to Chinese telecom giant Huawei.

At the same time, we have no indications that the sticking points that caused talks to derail in May are any closer to being resolved, and existing tariffs remain in place. A broader agreement most likely can be reached this year—hopefully by fall—but we may have to endure more economic upheaval until then.

Closer to home, the Federal Reserve (Fed) has sent signals that it may cut the fed funds rate by .25% in July, thereby reversing its December 2018 rate hike. A potential rate cut could be considered insurance against further slowing of the economy, and it still appears the odds of near-term recession remain low.

Another positive is the Fed’s willingness to adjust its policy in ways that may help prolong the current economic expansion, which at 121 months is now the longest ever recorded. Despite its record-setting length, this cycle potentially has more room to run given its gradual growth trajectory in the United States and the lack of excesses building up since the 2007–2008 financial crisis. Fiscal stimulus put in place over the past two years by the Tax Cuts and Jobs Act of 2017 also helps.

Second quarter ended June 30, and earnings season, when most publicly traded companies release their quarterly earnings reports, is fast approaching. The favorable fundamental backdrop for the U.S. economy may provide support for further corporate earnings growth in the second half of the year and into 2020. Better than expected earnings could help drive stock market gains in the second half of 2019, although the pace of earnings growth may be modest as we continue to deal with tariffs and trade uncertainty.

Underlying economic fundamentals, along with a supportive Fed and progress on global trade, have the potential to enable the U.S. economy to continue to grow steadily through the end of 2019 and beyond. However, as noted in the recently published LPL Research Midyear Outlook 2019: Fundamental: How to Focus on What Really Matters in the Markets, we may have to tolerate more market volatility while trade details are ironed out, and some pullbacks in the markets should be expected. It’s important for all investors to be prepared to weather some volatility, and suitable investors can use it as an opportunity to rebalance portfolios to align with long-term objections.

Please feel free to contact me with questions, and Happy Fourth of July.

Sincerely,

Wayne Rigney

 

 

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

All data is provided as of July 2, 2019.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

 

June Client Letter

Dear Valued Investor:

Trade tensions have interrupted an unusually calm year in U.S. stocks. In May, the S&P 500 Index fell from an April 30 record high as the United States and China failed to reach a trade deal and escalated tariff tensions. The United States also proposed new tariffs on Mexico, further complicating the outlook for trade. The turnaround in trade talks has surprised investors and rattled global financial markets.

While a resurgence in trade tensions is unnerving, investors should pause and consider the fundamental implications of increasing tariff rates. Higher tariffs and other retaliatory measures could potentially weigh on economic activity and inflation, but the escalation is not expected to derail this expansion. In the worst-case trade scenario, gross domestic product (GDP) growth could be closer to 2% this year. While slower, that pace of growth is largely consistent with the average pace over the last decade.

It’s still possible that the United States and China can avoid further trade escalation, since it appears the bulk of the agreement is already in place. The United States and China are expected to reach some kind of a trade agreement—or at least a trade truce—in the next few months. And trade issues with Mexico likely will be resolved sometime this summer.

There has been a lot of fear-based decision-making in markets. Some nervousness is understandable, but current concerns on tariff impacts look overblown. Most likely there may be more bouts of volatility ahead as President Trump and China President Xi pursue a new path to compromise. In the end, look for a deal that should help support continued growth in the United States and global economies.

Some stock market weakness after such a strong start to the year was to be expected. While it’s felt like a turbulent month, the S&P 500’s decline has been relatively modest compared to previous experiences.

The U.S. economy continues to grow at a solid pace, and job creation is steady. Wages are rising at a healthy rate, and some benefits of tax reform and fiscal spending are still supporting demand. Earnings growth also has been better than feared, and S&P 500 companies have the potential to exceed low profit expectations the rest of this year. Ultimately, earnings growth and solid fundamentals could drive the S&P 500 to new highs later in 2019.

It’s important to remember that stocks’ rally is still intact, and pullbacks like the most recent one are normal events over the long term. While near-term volatility can be uncomfortable, it has helped curb excesses in the markets and sustain healthy sentiment, allowing for what is now the longest bull market on record. Volatility may also provide opportunities for suitable investors to rebalance, diversify portfolios toward targeted allocations, or add to equity positions.

If you have any questions, please feel free to contact me.

Sincerely,

Wayne Rigney

 

 

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

All data is provided as of May 31, 2019.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking #1-860638 (Exp. 06/20)

May 2019 Client Letter

May 2, 2019

Dear Valued Investor:

If it seems like the financial markets have been off to an unusually strong start to the year—you are correct. The S&P 500 Index has risen for four consecutive months, resulting in the strongest start to a year in more than 30 years! To be fair, the early gains included recovery from oversold market conditions in December, but a steady combination of monetary policy, economic performance, and corporate profitability have pushed the S&P 500 to record levels.

While we’re pleased with the new highs, it’s also important to keep an eye on what could temporarily disrupt solid market performance. Three key areas when making investment decisions are market fundamentals, technicals, and valuation. A review of each suggests the market can continue to provide longer-term opportunity, but with the possibility for shorter-term volatility. In any event, it’s important for suitable investors to diversify their portfolio strategies to best take advantage of market conditions.

Market fundamentals remain encouraging. U.S. economic data have been steadily improving in recent months, with signs of stabilization in manufacturing and gains in employment, personal spending, and business investment. In addition, the Federal Reserve appears set on keeping interest rates at current levels for the near future, allowing market interest rates and fiscal tailwinds to help support domestic activity. This has been a healthy offset to concerns of slowing global growth, with a potential U.S.-China trade deal remaining the wild card.

Market technicals, which include sentiment, pricing, and volume patterns, currently indicate solid momentum, while a variety of industry surveys suggests investors have a healthy balance between appreciation and skepticism of the recent market gains. Although the S&P 500 recently hit a new high, it took more than six months to exceed its previous record set last September. Historically, when the S&P 500 has had at least a six-month “pause” between records, returns over the following 12 months were above average, which may indicate good news for summer markets.

The third important criteria is market valuation. Rather than simply looking at the price-to-earnings ratio (P/E) when making equity investment decisions, it’s also important to look at the P/E relative to the current level of interest rates and inflation, which both remain well below historical averages. As a result, although the market may be trading at record levels, it doesn’t appear to be overvalued.

It’s been quite a run for equity markets in the first four months of 2019. A quick review of market fundamentals, technicals, and valuation suggests a near-term pullback may be possible. However, suitable investors could use volatility as an opportunity to rebalance diversified portfolios or add to current positions to help work toward long-term investment goals.

If you have any questions, please feel free to contact me.

Sincerely,

Wayne Rigney

________________________________

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

Economic forecasts set forth may not develop as predicted.

All data is provided as of April 30, 2019.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking #1-849032 (Exp. 05/20)

April’s Bullish History

April 4, 2019

 

Dear Valued Investor,

Seasonality could be on the bull’s side, especially after U.S. stocks’ best first quarter in 20 years.

As shown in the LPL Chart of the Day, April has consistently been one of the strongest months for U.S. stocks. Over the past 20 years, April has actually been the best month of the year for the S&P 500 Index, rising 1.7% on average.

April Showers Have Brought Green Stocks1

U.S. stocks’ strength in April has been especially apparent in the current bull market. The Dow Jones Industrial Average (Dow) has closed up in April for the last 13 years, while the S&P 500 has closed up in April for 12 out of the past 13 years. Positive momentum at the start of the year has helped April’s returns: Since 1950, April has closed up 15 of 19 years when January, February, and March were all positive as well, and the average gain in April for those 15 years was 2.6%.

It’s hard to say what has caused positive seasonality at this point in the year. Investors could be heaving a sigh of relief after a typically volatile first quarter, managers could be squaring up portfolios at the start of a new quarter, or the advent of spring and warmer weather could just lighten up everybody’s moods.

However, higher stock prices may be tougher to achieve this April. U.S. stocks just capped a strong rally after a near bear market to end 2018, and a weaker corporate outlook, recession worries, and global headwinds could inhibit markets in the short term.

“April may bring showers, but lately it has brought a lot of green as well,” explained LPL Senior Market Strategist Ryan Detrick. “With the Dow up 13 of the past 13 years in April, this month sure has been kind to the bulls, but 2019 is a new year, and there are always new worries.”

We believe the S&P 500 will eventually push higher through 2019, as we maintain our 3,000 fair value target.

Sincerely,

Wayne Rigney

 

 

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured.  These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

 

 

Member FINRA /SIPC

For Public Use | Tracking # 1-838000 (Exp. 04/20)

11 Things You Need to Know About the Yield Curve

Well, it finally happened—the yield curve inverted. Now note that it was the shorter end of the curve that inverted, as the 3-month Treasury bill (and 1-year T-bill) now yields more than the 10-year Treasury for the first time since 2007. This matters because an inverted yield curve is the bond market’s way of saying there is a potential recession on the horizon. “The yield curve inversion is something that nearly everyone is talking about, given its perfect track record at predicting recessions,” explained LPL Senior Market Strategist Ryan Detrick. “At the same time, however, we simply aren’t seeing other areas of the economy that would confirm a recession just yet, so there is more to this story.”

Please note that there is no one true “yield curve,” as the yield curve simply looks at the yields of a shorter-dated fixed income instrument and compares it to a longer-dated one. In fact, the more commonly discussed 2-year/10-year yield curve spread hasn’t inverted, and it is actually above the early December 2018 lows.

Here are 11 things worth considering regarding the yield curve.

  • Each of the past 9 recessions back to the 1950s saw the 1-year/10-year yield curve spread invert approximately 14 months on average before a recession.
  • Although a yield curve inversion preceded all 9 previous recessions, not all inversions led to a recession. For instance, the 3-month/10-year yield curve inverted in 1966 and 1998, with neither leading to an immediate recession.
  • The shorter end of the yield curve has inverted, but the longer end is actually steepening. For instance, the 10-year/30-year yield curve has steepened most of this year. In past recessions, all parts of the curve inverted before a recession took place.
  • Financial conditions aren’t tight, as tight conditions coupled with the yield curve inverting, historically has led to a recession. Investment-grade corporate and high yield spreads remain calm, however, suggesting that not all parts of the bond market are worried about an impending recession.
  • Market participants have fully priced in a Federal Reserve (Fed) rate cut within the next year, potentially further flattening the curve. Should the economy gain steam during the second half of this year (which we think is possible) it will likely avoid a Fed rate cut, which should lead to a steeper yield curve.
  • We have found that a spread between the 3-month/10-year yield curve has become much more predictive of a recession at -50 basis points (-0.50%). So this still is a clear concern, but a marginal inversion may not be so worrisome.
  • Yield curves aren’t always perfect: Japan has had long stretches of inverted curves that didn’t lead to recessions. Additionally, both the United Kingdom and Germany have had inversions without recessions.
  • The fed funds rate has been significantly higher during previous inversions. In fact, the fed funds rate has averaged more than 6% when the 1-year/10-year yield curve has inverted. It is only 2.4% currently.
  • The previous 5 recessions began an average of 21 months after the 2-year/10-year yield curve inverted. Stocks actually did quite well initially after inversions as well, with the S&P 500 Index not peaking until over a year after the inversions and gaining nearly 22% on average at the peak.

An Inverted Yield Curve Isn't Trouble Immediately

  • Various yields around the globe continue to sink, with nearly $10 trillion in global debt now yielding less than 0%. The German 10-year Bund, for instance, is beneath 0% for the first time since 2016. We think this is due more to a concern over the European slowdown, which has forced many to look to the United States as a safe haven for sovereign debt, thus pushing our yields much lower along the way. This concept is discussed in more depth in our latest episode of the LPL Market Signals podcast.
  • As our LPL Chart of the Day shows, the S&P 500 has actually outperformed the average year the previous three times the 2-year/10-year yield curve inverted. To reiterate though, the 2/10 spread hasn’t inverted yet.

S&P 500 Performance After The 2 to 10 Year Yield Curve Inverted

In summary, an inversion on part of the yield curve may suggest trouble ahead for the economy, but don’t forget that economic growth and potential stock market gains can continue for years after the initial inversion. Additionally, with credit markets holding up well, employment still strong, and wages still increasing, we don’t yet see the necessary combination of worries that could suggest a recession is indeed imminent.

 

 

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. They are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured.  These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Member FINRA/SIPC

For Public Use | Tracking # 1-837002 (Exp. 03/20)

March 2019 Client Letter

March 7, 2019

Dear Valued Investor:

The S&P 500 Index has staged an impressive rally after nearly entering a bear market December 24, with U.S. stocks notching their best start to a year since 1991.

Stocks have climbed the “wall of worry” once again, but global uncertainty persists as the bull market nears its tenth anniversary. While the road to new market highs could get a little bumpy as investors deal with Brexit and China trade concerns, investors are encouraged to focus on the fundamentals supporting economic growth and corporate profitability in 2019.

Although recession calls have grown louder over the past several months, mounting evidence suggests that this economic cycle could persevere at least through the end of 2019. The U.S. labor market remains solid, U.S. manufacturing health remains in expansionary territory, and consumer sentiment is starting to recover. Leading economic indicators suggest there’s more runway in this expansion.

A pause in monetary policy tightening may also support U.S. economic health. The Federal Reserve (Fed) has indicated that it will abstain from raising interest rates further until there is more clarity in the global environment. That message has calmed investors’ fears that continued policy tightening could eventually smother future economic growth. Inflation remains at healthy levels; however, if there are signs of wages growing too rapidly, another interest rate hike may occur, possibly in the second half of this year, to help manage inflation. Even if this happens, slightly higher rates most likely won’t derail the economic trajectory.

Corporate profit growth should also support U.S. stocks, as earnings for S&P 500 companies grew last year. While the pace of corporate profit growth is expected to moderate, stock performance over the rest of this year is expected to at least match the mid-single-digit earnings growth anticipated for the S&P 500 in 2019.

Seasonality and momentum are also on investors’ sides. In 27 of the years since 1950, the S&P 500 has closed up in both January and February, and it has gained in the final 10 months of 25 out of those 27 years.

Though some early economic and interest rate forecasts have been lowered in response to a patient Fed and slowing global growth, the overall view hasn’t wavered. The pieces appear to be in place for a continued economic expansion, and stocks are expected to power through periodic bouts of uncertainty and occasional volatility.

If you have any questions, please feel free to contact me.

Sincerely,

Wayne Rigney

 

 

 

 

 

 

 

 

 

 

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Member FINRA/SIPC

RES 87988 0319 For Public Use – Tracking #1-829339 (Exp. 03/20) 

February 2019 Client Letter

February 07, 2019

Dear Valued Investor:

Most of the country might still be in the throes of the winter, but after extreme cold throughout many parts of the United States, thankfully the weather has warmed up. Stocks followed a similar path, warming up in January after a chilling December. Since the lows in December, the market is up more than 16% (as of Feb. 6, 2019). Some recent reports have been encouraging and point to a steadily expanding economy. Meanwhile, market participants have become more comfortable with the Federal Reserve’s (Fed) message. While these are positive developments, the likelihood for further volatility persists. Investors are encouraged to remain focused on the fundamentals that support a positive outlook for continued economic growth and stock market gains in 2019.

Recent economic data have pointed to a U.S. economy that remains on sound footing. The latest reports on U.S. manufacturing came in better than expected, reversing December’s disappointing data and signaling continued expansion in the manufacturing sector. In addition, more than 300,000 jobs were created in January, while inflation remains contained. These data points signal a growing U.S. economy.

The Fed and the market haven’t seen eye to eye on policy over the past year, but that may be changing. At its last policy meeting, the Fed announced it would be much more patient with future rate hikes, which could remove one of the big uncertainties for investors. The Fed reinforced its stance that the U.S. economy remains solid, and cited factors such as slowing growth in China and Europe, trade risk, elevated uncertainty, and deteriorating investor sentiment as influencing its recent shift. Because of these crosswinds, the central bank has chosen a wait-and-see approach, and will likely hold off on policy moves until there is greater clarity on global economic conditions. The stock market responded positively to the Fed’s message that interest rates would be lower than had been initially anticipated, with its first gain on a Fed announcement day since Jerome Powell took over as Fed chair.

In closing, although we should remain prepared to weather any further market volatility, these signs are encouraging—much like early signs of spring peeking through the snow. I encourage you to stay focused on the fundamentals supporting the economy and corporate profits.

If you have any questions, please feel free to contact me.

Sincerely,

T Wayne Rigney

 

 

 

 

 

____________________

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking #1-819896 (Exp. 02/20)

January Client Letter

January 10, 2019

Dear Valued Investor:

It’s a new year and resolutions are in place, but investors in the financial markets may be struggling to find their optimism. The past several weeks have been very difficult, as the stock market sell-off resulted in the worst December performance since 1931. It’s understandable how such a dramatic decline can deliver a blow to investor confidence and lead to reactions driven by fear and an instinct to protect ourselves from further losses. Although it can be hard to completely take our emotions out of our investment decisions, it’s during times like these when we need to force ourselves to focus on the facts instead of how we feel. That means considering not only our current environment but also the historical investment tenets that we rely on—avoiding the urge to sell near the market bottoms, sticking to an investment plan, and maintaining a long-term perspective.

Bearing all of that in mind, it’s important to recognize the challenges facing the market today, but also maintain confidence in the fundamentals sustaining growth in the economy and corporate profits in 2019. The pace of growth is expected to be slower in 2019, but remain supportive of solid potential stock gains.

It may take some time for the market to turn around, however, given the severity of the damage. Several factors are weighing on investor sentiment right now, including trade tensions with China, weaker oil prices, the path of interest rates, and uncertainty regarding the political environment, notably the government shutdown. Consequently, a few major domestic and global equity indexes have slipped into a bear market (a decline of 20% or more from recent highs).

It’s important to point out that we could enter a bear market without the economy experiencing a recession, although there is the possibility that a “self-fulfilling recession” may develop. In other words, as political and trade uncertainty leads to falling asset prices and limits business investment, this could pressure growth in productivity, employment, and consumption, thus slowing down the overall economy. However, given the current record levels for U.S. gross domestic product and employment, stable inflation, and manufacturing and services reports that are still indicating expansion, it still looks like a recession is unlikely for 2019.

Many of us often wish to start a new year with a renewed positivity about the opportunities that may come in the year ahead, and this current market environment certainly makes that challenging. But a new year is also about making a commitment to make positive changes for the long term. A successful new year’s resolution is about having discipline, consistency, and dedication—thinking beyond the action you may take in January and instead envisioning sustainable improvements.

This is the perspective we as investors must strive to maintain during these difficult times. The fundamental backdrop supporting growth in the economy and corporate profits appears to remain sound, and the economy and markets have a long and successful history of finding ways to adapt, recover, innovate, and grow. If we can maintain our commitment to focus on those fundamentals and rely on the right guidance, we can weather these challenges in pursuit of our long-term investment goals.

As always, if you have any questions, I encourage you to contact me.

Sincerely,

Wayne Rigney

________________

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Tracking #1-809878 (Exp. 01/20)

Client Update

December 21, 2018

Dear Valued Investor:

After a mixed first half of the year and a solid third quarter, stock markets weakened considerably in the closing weeks of 2018. Turmoil in the financial markets is never a pleasant experience for investors, and that’s why we rely on helpful guidance, context, and insight to help us weather these times and prepare for what may lie ahead. Indeed, LPL Research’s recently released Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets provides investors with a guidebook for navigating a maturing economic and market cycle.

Several factors are weighing on investor sentiment right now, including policy uncertainty regarding trade, weaker oil prices, the path of interest rates, and the geopolitical environment. Despite these pressures, the fundamental backdrop supporting growth in the economy and corporate profits appears to remain sound, suggesting that this market weakness may not lead to a recession in 2019. The U.S. economy remains solid and continued growth is expected to support solid potential stock gains in 2019.

Policy has been a prominent factor this past year, as the contribution from fiscal incentives including tax cuts, reduced regulation, and increased government spending helped boost growth. The combination of these trends propelled U.S. growth toward annual gains of approximately 3% (as measured by gross domestic product), and the stock market managed to achieve all-time highs during the third quarter. Policy uncertainty has increasingly weighed on investor sentiment, however, particularly surrounding the midterm elections and as trade tensions have continued to make headlines.

Anticipation was high for a tariff agreement between the U.S. and China at the G20 summit meeting. Although it concluded with a lengthier path toward progress than most had hoped for, continued progress is still expected in 2019. Oil prices remained weak after the announced OPEC production cut, as investors debated whether weakness was due to slowing global growth. Rather than a demand problem, oil appears to be a supply issue and thus not indicative of a recession, particularly now that the U.S. is the world’s leading producer.

Perhaps the biggest policy uncertainty weighing on the markets has been the Federal Reserve (Fed) and the future path for interest rates. The Fed’s recent rate hike, coupled with reduced growth forecasts, added to investor concerns and further pressured stock prices. Considering LPL Research’s forecast of steady economic growth and lower than average inflation, the Fed may keep interest rates lower in 2019 than the markets currently fear.

Although market weakness can be alarming and cause investors to question their strategy, this is when we must focus on what matters in the markets and try to remain calm. The combination of high employment, solid consumer spending, improved trends for business investment, and mild inflation should result in a firm, fundamental foundation supporting growth in the economy and corporate profits in the year ahead.

As always, if you have any further questions, I encourage you to contact me.

Sincerely,

Wayne Rigney

 

 

 

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Important Information

For additional description and disclosures, please see the full Outlook 2019 publication.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Tracking #1-805292