Thursday, March 7, 2019

Monthly Market Insights: March 2019 | We March Onward

Spencer Joyce, CFA
Author position
Vice President | Markets Analyst

We March Onward

I live in Louisville. We have an emerging downtown area with a nice arena, so I will occasionally check what’s going on. This exercise recently revealed something for nearly everyone in just the first half of March. Boomers can check out the wild side with Gene Simmons and Kiss. Fans of the Voice (or country music) can see Blake Shelton. Metallica and Weezer are coming to town for Gen Xers, and of course there is college basketball for everyone!

If we assume these events exist because promoters can sell tickets, the US Consumer clearly marches onward. Social unrest and public demagoguery might dominate news cycles, but much of the electorate is doing just fine. Decades of economic growth and years of strong financial markets have helped many retire comfortably. And for those still working there are plenty of options. The US economy likely added jobs for a 101st straight month in February, and the unemployment rate sits at about 4%. Younger folks may not be courtside for basketball games until those student loans are paid off. But these balances are not the anchor on life, or the economy, that they are made out to be.

The rise of student loan debt is a topic we entertain quite a bit in Strategy & Research. Growing debt is always a little spooky, but there are major differences from the mortgage meltdown. Most importantly, student loans are primarily held by the US government. Uncle Sam can withstand paper losses in a way that banks could not handle mortgage defaults. Furthermore, total school debt is about $1.5 trillion. This is a lot of money, but a mere fraction of mortgage debt circa 2007-2008 ($9T). Student loan payments are dampening the formation of new households, and the purchase of cars and fancy dinners, but these delays are not a systemic risk to our economy.

Many of the current narratives in investing are polarizing and fatalistic. The ‘us vs them’ trade war with China; unknown fallout from Brexit; policy gridlock and political rancor in Washington. But here in the real world where you and I (and Ds and Rs!), are going to shows, the companies we own continue to march onward as well.

Across the past month or so, most major US corporations reported final results for 2018. The S&P 500 grew earnings a whopping 24% last year. Tax cuts provided a boost to net income, but sales growth of 10% was driven by real economic activity. Over the short-term stocks do not always move in tandem with results. However, with these figures in mind, it is perhaps not surprising that the S&P 500 just turned in its best January-February period since the dissolution of the Soviet Union.

It might not look or feel or sound like society is functioning like it’s supposed to, but under a veneer of dystopia, we (and our investments!) march onward.

– Spencer E Joyce, VP, CFA

Name to Know for March

Dr. Scott Gottlieb

FDA Commissioner

Dr. Scott Gottlieb is the current head of the US Food & Drug Administration. This will be his final month on the job however, as he announced his resig-nation on March 5. He seems to be leaving to spend time with his family, which never moved from CT to D.C.

Dr. Gottlieb has been a relatively high profile FDA chief, taking aggressive aim at next-gen tobacco usage among youth. Drug approvals were generally quicker under his watch, and he was vocal in acknowledging the opioid epidemic. Continuation, or deviation, from his platform will likely have investment implications across the Healthcare and Staples sectors.

Markets Rundown

US Equities: The S&P 500 gained 3.2% last month. Jan-Feb 2019 were the best opening to a year since 1991.

Global Equities: Emerging Markets and Developed ex-US stocks were positive, but lagged in February, rising 0.2% and 2.6%, respectively.

Federal Reserve: Futures imply a 90% chance that the Fed Funds rate ends 2019 where it is right now. The next Fed meeting concludes March 20.

US Treasuries: The 10-yr and 2-yr Treasuries yielded 2.75% and 2.55%, respectively, as of March 1. The curve steepened a bit in February, a positive indication for the US economy.

US Credit: Investment Grade and High Yield corporate bonds yield an average of 1.34% and 3.81% over Treasuries, respectively. Spreads compressed last month.

Markets Rundown Source: Bloomberg

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your per­sonal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi­fication and asset alloca­tion do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.