“Age is Just a Number” – Nvest Nsights Q1 Newsletter Articles

The 1st quarter was one of the strongest starts to a new year in the last two decades.  It followed an equally unsettling period over the final 3 months of 2018 which significantly damaged investor sentiment, making the swift rebound another textbook example revealing just how challenging would be market timing.   This quarter’s newsletter contains four brief articles.  “Reflections on a Bull Market” and “Age is Just a Number” provide perspective on the progress of the current bull market  and economic cycle, respectively, which are both long by historical standards but need not die due to age alone.  “No Beauty Contest” shares why the treasury yield curve is an indicator investors are monitoring closely, especially now, while “Style Differences Exist” provides color about how we are positioning client accounts with consideration for managing portfolio risk.

The full printer-friendly version of our newsletter, including data tables for selected mutual fund and ETF performance as well as portfolio benchmarking, can be downloaded here: NVEST NSIGHTS 1Q.

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1Q Resoundingly Strong; but Conflicting Signals Emerging – Week Ended 3/29/19

The 1st Quarter concluded with each month firmly in positive territory and a cumulative advance for the S&P500 of +13.6% – a sharp reversal from the experience suffered closing out 2018.  Interesting fact: since 1950 there are only 19 examples of the S&P500 starting a year with positive performance in January, February, and March and returns over the following 9 months historically came in above average (though mid-year corrections were just as likely).  The early year improvement has been most attributed to a decidedly more deal-seeking tone on the issue of US-China trade and a US Federal Reserve that now appears firmly on break from any additional interest rate hikes or incrementally tighter monetary policies.  While those developments are welcomed, the forward-looking message to be gleaned is far less clear.  In recent weeks for instance, smaller-size companies along with transportation and industrial sectors have been laggards.  Too, it is widely expected that the US economy has entered a decidedly more sluggish period of economic growth and safe-haven bond yields have drifted lower; a condition usually accompanied by a risk-off mood and caution.

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Bull’s 10th Birthday Brings Little Fanfare – Week Ended 3/8/19

It was just the 2nd down-week of the year, but below the surface many individual names have been consolidating since mid-February.  The S&P500 gave back -2.1%, but the more cyclical and strongest YTD performing areas are pulling back more sharply with transportation stocks down -3.3% and small-caps off -4.3% (Russell 2000).  This weakness should embolden the somewhat consensus call that that the rally since the Christmas eve low was too strong for such a short-period of time and without any retesting.

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“Show Me” – March Commentary

Two months and so far, a very Happy New Year!!!  February added +3.2% to a very strong January, making this a great start to 2019 for investors with the stock market jumping a cumulative +11.5%.  Wow!!  We appreciate the Fed again communicating economic data dependency rather than an autopilot path of raising interest rates, plus tariff talk between the US and China is showing promise of moving toward a resolution.  These items are propelling markets higher.

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As Markets Continue Rebound, Investors Should Remain Focused on Risks – Week Ended 2/22/19

US financial markets continued their rebound during the President’s Day shortened trading week ended Friday the 22nd.  The S&P500 added another +0.7% and international markets also responded with the MSCI EAFE improving by +1.6% (now up +9% YTD).  Whereas January was fueled by a softer, more comforting tone by the US Federal Reserve and other foreign central banks, progress in February is being supported by increasing optimism over a trade/tariff resolution being finalized between the US and China.  On that front, talks continue to carry a deal-seeking tone; a stark contrast from the war of words and relentless lobbing of verbal grenades that characterized 2018.

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Impressive Recovery Continues, But Time for the Rally to Fade? – Week Ended 2/15/19

Major US indexes added to already impressive gains last week with the Dow, S&P500 and Nasdaq each adding between +2.4% – 3.0%.  Just eight trading weeks into the new year, the Dow and S&P500 are up roughly +11% from where they entered; and higher-beta corners of the market (such as small-caps and cyclical transportation stocks) are enjoying  even stronger recoveries in the neighborhood of +15%.  The numbers are even more impressive if one begins their count from the Christmas Eve low.  Interestingly, as equities have improved back to, and even through, the most obvious levels of technical resistance the pace does not seem to be slowing despite what remains a quite lengthy list of items that need to “go right” for the US economy to manage a soft economic landing.

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“Was the January Rebound Too Fast?” – February Commentary

Thank the Fed for the surge! The S&P500 posted its best January performance in 30 years (since 1989). Following a nasty 4th quarter and very difficult December which ruined the year, the Fed offered numerous reassurances in January that it was not inclined to make a policy error. Fed Chairman Powell shared that policy action would be more data dependent; rate increases and tightening monetary policy would not be on “auto pilot” in 2019; this was a stark difference from the tone conveyed in December. We believe January market action was mostly a reaction to a pause in rate hikes. It provided tremendous “fuel” for the strong rebound of +8.0% in the last month. Hey, that’s a bit stronger than the January 2018 performance start of +5.6%. Yet, there is one notable difference…last January, 51% of investors expected higher stock prices which did not materialize for the year; today, only 31% expect higher prices. Domestic and foreign stocks rebounded, and client portfolios benefited from the market boost in January (note the difference a month makes).

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Government Re-opens; But Busy Week Ahead – Market Notes for Week Ended 1/25/19

After an impressive 4-week rally, US equities appear to be butting up against arguably their first formal area of technical resistance being near the 200-day moving average.  The broad-based strength that began the day after Christmas is in recent days turning decidedly more sideways; for the week ending January 25 the Dow managed to finish slightly higher and extend its weekly winning streak to 5, but the S&P500 (considered to be broader and more representative of the overall market) slipped slightly.

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As Both Conclude Week 4, Stock Market Rally and Gov’t Shutdown Continue – Week Ended 1/18/19

US equities capped a 4th consecutive week of gains, bringing US equities back roughly +13% thru this past Friday from its Christmas-eve lows. As one might anticipate, the markets are also off to an extraordinarily strong New Year start with the S&P500 up +6.6%; encouraging, more economically sensitive areas of the market like small-size companies are faring even stronger over that period with gains of roughly +10% (Russell 2000). Most of that strength is being attributed to a more collaborative narrative surrounding trade negotiations between the US and China, as well as a more data-dependent and cautious Federal Reserve as it relates to normalization of monetary policy. The only missing element of full improvement from a domestic policy perspective at this point is that the US government remains partially shut down and there is little sign of either side appearing willing or desirous of reaching compromise. In any event, the stock market’s strong rebound serves valid reminder of how quick and suddenly direction can reverse course in financial markets, even as worries are not fully resolved.

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