From a December to Forget to a 2019 to Remember (so far!), the markets have shown once again how difficult it is to predict their movement in the short term. January and February are in the books as the strongest start to a calendar year in over 30 years. This helped to repair much of the damage you saw on your fourth quarter statement of 2018. Be sure to open your first quarter statement of 2019 that you will get in about three weeks or so to see the improvement!
We have the Federal Reserve to thank for this quick market turnaround. Their decision to shift from raising interest rates to holding them steady sparked this market improvement. Going forward, we believe there are enough positive economic indicators to continue this positive market movement albeit not as quickly as what we saw in the first two months of the year. Corporate profits are still at historically high levels with companies reporting profit increases of over 13% for the most recent quarter. Unemployment levels are still at historical lows while wage growth (and correspondingly consumer spending) have started to pick up.
Despite this positive economic news, all the conversation in the media is that the next recession is just around the corner. Well, let me remove some of the mystery on that – a recession will absolutely occur in the future – they are after all a normal part of the economic cycle. If you are age 65 today, then you will most likely see 3 or 4 more recessions in your lifetime. The unknown question of course is – when will that recession occur? With the current economic data and interest rate climate, it is hard to imagine that a recession is imminent in 2019. Speculation that Brexit, trade policy with China, or increased tension with North Korea might accelerate that timing is just that – speculation. Regardless, given the lower levels of borrowing and higher levels of cash holdings in the current economic cycle, we believe the next recession will be somewhat mild – much more like a 1990 type recession than a 2008 one.
So what should you do to prepare for the next recession? Well, your job is to stay calm and maintain perspective. Things are never quite as bad as the media makes them out to be. Our job is to make sure your accounts are well balanced and broadly diversified and that your investments are some of the best available. On that front, the annual ranking of fund companies by Barrons came out last week and American, MFS and Putnam all placed in the Top 10 for either 5 year rankings or 10 year rankings. American Funds in fact garnered the title of the best fund family for 2018 based on the overall performance of its funds.
Tax season is in full swing at the office these days and certainly all the tax changes for this year are producing a range of results. Our capacity this year is much greater than last because we have added a full-time CPA to the team. Kristin Kalley joined us in early February. Previously, Kristin worked for a global accounting firm but more importantly, years before that, she was an intern at our office! Her addition at the office provides us with not only the capacity to do more tax returns but also to visit with folks during this time of year on non-tax related matters as well. So don’t hesitate to come in for a conversation at any time!
Look forward to seeing you soon!