PDF Q1 2019 Market Review & Outlook

[Pages:10]2019 FIRST QUARTER

Market Review & Outlook

CONTENTS

Executive Summary

2

Market Review & Outlook

3

Unicorn Stampede?

7

Yield Curve Hype

8

Q1 2019

EXECUTIVE SUMMARY

Global stocks rebounded following a significant correction in the fourth quarter of 2018.

U.S. equities were up 14%, while international stocks gained 10.4%. Bonds also rallied.

The correction last year was fueled by three primary fears: trade war, rising interest rates/

yield curve inversion, and slowing earnings growth. So far this year, each of those fears has regressed. Significant progress has been made toward a trade agreement with China, the Fed changed course and no longer expects to raise rates in 2019, and earnings results have been "good enough."

The current economic expansion has been longer than most, but also characterized by

slower average growth. Ten years deep into a bull market feels to us to be the wrong time to be greedy. That said, we don't see any compelling reason to believe the U.S. economy can't continue to expand at a steady pace or anything suggesting that the short-term outlook for stocks carries more risk than normal.

Funding raised from IPOs is expected to approach or surpass $100 billion in 2019, a

level last seen just before the dot-com crash. Some view this as a sign that the party in stocks (and especially the tech sector) is nearing an end. We're not worried about it.

The current shape of the yield curve is functionally flat, not inverted. A few basis points

either way does not drive meaningful economic decisions.

Personal Capital passed $9 billion of assets under management. A big part of our growth

comes from client referrals. Thank you to all of our clients for making this possible.

We're excited to announce that Porter Gale joined our executive team as Chief Marketing Officer.

" It's an honor to join Personal Capital as your new CMO. We are working on some exciting changes in Marketing--if you have any feedback, please feel free to reach out at porter.gale@.

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Market Review & Outlook

The first quarter of 2019 felt like watching the dismal fourth quarter of 2018 in reverse.

Last October, stocks entered a swift decline fueled by three primary fears: trade war, rising interest rates/yield curve inversion, and slowing earnings growth. U.S. stocks lost 14% during the fourth quarter, and global stocks finished the full year down nearly 10%.

So far this year, each of those fears has regressed. Significant progress has been made toward a trade agreement with China, the Fed changed course and no longer expects to raise rates in 2019, and earnings results have been "good enough." U.S. stocks responded with their best quarterly result since 2009, up 14.0% (VTI). International equities, which held up better during the Q4 decline rose more slowly, up 10.4% (VEU).

Since the beginning of last year, the global stock market is up just 1.2% (VT), but has experienced significant volatility. That has some investors questioning their investment strategy. Among our free dashboard users, we see some stretching into higher risk investments while others moved to cash.

The rapid correction and recovery whipsawed many who reacted emotionally. After an extraordinary lack of volatility in 2017, the recent choppiness is a good reminder that markets don't go in a straight line and strong up-and-down moves should both be expected and planned for. Those with a strategic plan were able to benefit from tax management and rebalancing and we believe remain likely to emerge from full market cycles successfully.

PERSONAL CAPITAL Q1 2019: MARKET REVIEW & OUTLOOK

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It is understandable to expect "typical" market returns most years, but in reality average should not be confused with normal. Since 1926, the S&P 500 has returned between 0% and 20% in less than 40% of years. Along the way there have been sector booms and busts, regional bubbles and just about everything else imaginable. Capturing the benefits of capital market returns is by definition an interesting ride. It is important to be prepared in advance to reduce temptation to chase what is hot or to let emotion be destructive.

Not everything this quarter was a mirror image of last. Longer term interest rates fell in Q4 and continued falling in Q1, driving bond prices higher. The 10-year Treasury yield ended the quarter at 2.4%. Some view this as bullish for stocks because low interest rates encourage investment, support housing prices, and help justify higher valuations. Others see it as a bearish indicator suggesting economic growth will slow.

Trade remains a big unknown. United States and Chinese officials are believed to be close to a deal and are said to be in the process of reviewing specific terms. Still, such negotiations are tricky and leaders from both sides are unpredictable.

To be a positive, an agreement would need to be

viewed as comprehensive and permanent. With wide-

spread optimism for a resolution growing over the last

couple of months, most of the upside may already be

baked into stocks and risk from this issue may now be

skewed to the downside.

Source: Ibbotson

U.S. stocks post returns between 0% and 20% less than 40% of the time

Source: Ycharts

20% 18%

14%

15%

14%

FREQUENCY OF RETURNS

5%

3%

3%

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