Commentary for the period ending 1-14-19

Hello all, I hope your 2019 is going well.  I wanted to provide a brief market update after the remarkable run stocks have had to start the year. 

Right now, the S&P 500 is up over 2% on the year while having its best start to a year in 13 years.  It’s also up over 10% from the lows hit just before Christmas.  

Since rising so sharply, we wouldn’t be surprised to see the rally stocks take a little breather and maybe even turn lower.  Many of the indicators we follow have risen to “overbought” territory, signaling stocks are expensive and the rally may be running out of steam.  

However, these are short-term indicators that only useful for looking out several days to a couple weeks.  Longer term, we think the market has more room to move to the upside.

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The main concern of the market the last several months has been the Fed.  Chairman Powell expressed commitment to pulling back on its stimulus and raising interest rates, causing the market to fall. 

Lately, though, he has been signaling that they may be pausing on the reduction in stimulus.  This has been a major reason for the recent increase we have seen in stocks.  

While the Fed may not be a problem for stocks in the near term, corporate earnings for the fourth quarter start rolling in this week.  Expectations have been lowered to 11% growth – which is pretty solid – but it is a deceleration from the 25% growth we saw in early 2018.  

The government shutdown is another concern for investors.  While the market has historically risen during these shutdowns, the length of the current shutdown makes this one a little more difficult to predict.  

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In conclusion, we wouldn’t be surprised to see stocks pause or even decline here, but think there are further gains in the coming months.  We wouldn’t put new money in the broader market at this point and instead look to individual names for new money.