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January 2019 Month in Review
Had we not seen the 4th quarter we saw last year, I can imagine the optimism would be high with current investors. Yet, here we are with the best January for the S&P 500 since 1987 (and the 4th best since 1970) and investors still seem restless about what is happening in their portfolios.
But despite our wary feelings, the global markets has given us relief from a very bad December. The US large stocks and small stocks returned an astounding 8.01% and 11.25% respectively. Much more the international markets where positive as well, with emerging markets handing us 8.77% for the month. While value stocks and growth stock both were positive, growth did perform better as it had more to recover from than value stocks. Even the overall US bond market maintained its pace from December, posting a 1.06% return.
Regrettably though, we feel the downside of the market in our crawl more severely than we feel the upside in our spirits. Why is that? Two reasons. The first is because when we invest long-term we expect our portfolio to grow. So when it goes down we have alarms going off, but when it goes up we don’t experience euphoria because…well…we expected it. The second reason is because in most cases, we experience the pulldown faster than we experience the rebound. Last year for example the 10% pullback in Jan/Feb happened in 10 days, the 9.76% pullback starting late September happened in 39 days, and the 15.64% correction that started early December and ended on Christmas Eve was 20 days long. Since investors care more about fear than greed, it creates a more emotional reaction through the downturn.
Big things in the news included the Federal Reserve’s report after their meeting where they reiterated that they will be dovish in their tightening process, something markets enjoyed hearing. At this point the Fed Funds Future’s market is predicting ZERO rate hikes for this year and in fact show a higher probability of a rate DECREASE, than a rate INCREASE. I believe that the market is over-predicting the dovishness of this Fed and still maintain that J. Powell will hike rates at least one more time in 2019.
Another big event in January (and leaking into February) was the government shutdown that lasted longer than many expected. While this was a hard season for the workers directly affected, and those businesses that lost revenue in the process, the market shrugged it off as the overall effect to the economy was still small. That being said the cost of government shutdowns is not linear and we believe if a shutdown comes back and lasts much longer than the last one, there could be more market movement to follow.
We still maintain that this year there will be opportunity arising overseas in emerging markets (EM). Look for more clarity between the trade negotiations with China sometime this year to be a positive sentiment driver for EM. We also believe the dollar index will continue on a cyclical downward trend that will benefit revenue from US-based companies, as well as a tailwind for international markets, specifically EM. The dollar in January leveled off and in fact decreased by roughly 0.5%. We expect a more of a 2017-like year for the dollar (down between 5-10%) than a 2018 one.
If you missed our annual market outlook webinar you can access the replay HERE.
A reminder, if you have missed any of our Month-In-Reviews you can find them archived on our website at https://www.aghwealth.com/p/month-in-review.
Thank you for your trust and confidence.
LPL Financial Advisor
Vice President, AGH Wealth Management
DISCLOSURES: Indices discussed above were analyzed on Morningstar Direct™. The indices included the S&P 500 Index (US large stocks), Russell 2000 Index (US small stocks), Russell 1000 Growth Index (growth stocks), Russell 1000 Value Index (value stocks), MSCI ACWI ex US Index (international stocks), MSCI EM NR Index (emerging market stocks), and BBgBarc US Agg Bond Index (US bonds). The US Dollar Index was measured from the Trade Weighted U.S. Dollar Index: Major Currencies (DTWEXM) Index. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forcasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the loss of principal. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.