3Q2019 Market Review Newsletter

August 5, 2019

I hope this finds you well, having enjoyed Independence Day with your loved ones. For those who don't know me, my name is Nick Weisert, I joined Integra Financial at the end of April. I'm pleased to make your acquaintance and look forward to meeting you in the months to come.

The first half of the year has recovered nicely from the drawback at the end of 2018 and has even returned somewhat to the calmer waters of 2017.


3q2019 YTD Market Returns 6-30-19

The broad Morningstar index is up 18.88% for the year. All sections of the market are up double digits, small, medium, large, core, growth, and value. It is unusual to see all parts rise in tandem; usually, you have some sectors outperforming and others underperforming. More unusual still, bond performance is also up, albeit less than equity performance.

The two macro-level stories that have affected the market in 2019 have been the 1) Federal Reserve's pause and expected reversal of raising interest rates and 2) a new trade agreement with China. Where in September of 2018 the expectation was additional interest rate hikes; today the market expectation is for interest rate cuts. The reversal has driven a swift upturn in equities with the rate “pause” and a subsequent rise in bond prices with the expected reversal in 2020.



3q2019-volatility-has-receded

The expected trade deal with China, whether positive or negative is less clear; it has caused some market volatility in otherwise relatively calm waters.


3q2019-fed-funds-rate-now-expected-to-decline

So, what's next? With one of the longest bull market runs in history and stocks reaching fresh all-time highs at the end of June, many people we talk to are nervous. While my “gut” reaction is similar, there are many reasons to be cautiously optimistic when you take a closer look at the numbers. Some food for thought, the current forward price to earnings ratio for the S&P is 16.74, the 25-year historical average is 16.19, meaning stocks are only slightly overpriced compared to historical averages when measuring expected earnings. Corporate earnings grew 4% in the first quarter and are expected to come in with growth in Q2 as well. The unemployment rate is the lowest it has been since 2000 and layoffs as a percentage of jobs are the lowest we have ever seen. For all these reasons, we continue to believe there is room to grow. There are several factors that could increase volatility, however (e.g, China or Iran, new tariff issues). While we don't know what path the markets will take day-to-day, Warren Buffett himself said, “be greedy when others are nervous and nervous when others are greedy.”

We hope everyone has a great summer.

Thank you for the trust you place with us. Willis, Bill, Keith, Kathy and I are truly honored to help build your financial future.


My best,

Nick


Reference Data: Wall Street Journal, First Trust, Blackrock, JP Morgan, Thompson Reuters and Morningstar


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