Lindsey Report March ’19

Well thankfully the rally that began the day after Christmas continued into and through February.  The S&P 500 enjoyed its best start to a year after two months since 1991 (AP).  Of course we all realize that December was especially ugly, but the markets have mostly retraced those losses.

The following statistic is what I’m calling a “fun fact”.  Since 1950, the S&P 500 has been up the first two months of the year 27 times.  The “fun” part: in 25 of those years, the S&P 500 made more gains in the final 10 months.  (LPL Daily Market Research, Wednesday, February 27, 2019).

Not to overly rehash December, but for some reason there was growing speculation (at the time) that a recession in 2019 was somehow imminent.  With the Eurozone struggling to keep growing, China slowing, no end in sight for the trade spat, and our Federal Reserve raising rates, many believed it was coming sooner, rather than later.  While recessions happen and they will likely happen again, the fear of a 2019 recession has seemingly abated.

What has changed?  First, after the Federal Reserve raised rates in December ’18 (the eighth in two years), there were concerns that they might overshoot and induce a recession (Bloomberg). Since then, the Fed has taken a more “dovish” stance.  This means that they are not aggressively raising rates in ’19 and may sit tight for a while. The Fed did not raise rates this February.  Plus, the Chairman stated that “the Committee will be patient” (NBC).  This has calmed some fears.

Second, 2018 was a robust year for corporate profits, which was a good thing (Factset). The trouble; however, is that the markets are “forward looking” so earnings in 2019 will be compared to 2018.  Fortunately, earnings estimates for 2019 have been slashed, and now the bar appears to be quite low.  Therefore, the ability to “beat” earnings estimates is much more doable today.

Finally, and this may be the biggest reason of all: China Trade.  While I have long believed that we would do something to resolve this issue, there has been growing optimism in ’19 that we are close.  The title of a March 4th, CNN article sums it up, “Trump and Xi Could Meet this Month to End the U.S.-China Trade War”.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

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