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Monthly Commentary


March 31, 2019

Hope Springs Eternal




With 2018 hailed as the worst year for stocks since the 2008 financial crisis, many market forecasters feared that winter had finally come and the bear market was here to stay. We held a contrary view. As we wrote in our year end letter, despite the fourth quarter selloff, we believed we were living through a “sick stock market in a healthy economy” and strong fundamentals would ultimately win out.1 We editorialized a “buy on fundamentals” philosophy based on the knowledge that corrections are not only a natural part of the market cycle but also examined that following “several downdrafts since the March 9, 2009 market bottom…domestic stocks managed a fairly quick recovery…precisely because the underlying fundamentals of our economy and its businesses were strong too.”2 Accordingly, the market’s recent rally supported our thesis, highlighting the environment that wreaked havoc on year-end returns, was just another one of the markets short-lived tremors. U.S. markets delivered a banner first quarter, with the S&P 500 up 13%, its best showing since 2009. In fact, “gains were broad, as all eleven S&P 500 sectors ended higher for the quarter”3 for the first time in five years. The Dow Jones Industrial Average and the NASDAQ Composite also outperformed, rising 11% and 16%, respectively, and the Russell 2000 Index delivered a 15% increase in the quarter – its best start to the year since 1991.


Several factors have investors looking to 2019 with positive sentiment. Since the 2018 sell off was greater than economic news and indicators warranted, U.S. equities started the year ‘on sale’ with valuations beneath historical averages. Additionally, optimism about trade talks and the decision by the Federal Reserve and other central banks to pause further interest rate hikes on signs that the economy has shifted down a gear has reassured those concerned with borrowing costs and overall consumer spending. Markets are also rallying around the belief that the U.S. continues to be a relative bright spot in the global marketplace. Uncertainties surrounding Brexit have shaken the United Kingdom and economic growth has cooled from the Eurozone to China. So while the U.S. economy isn’t breaking any records, it remains steady, and that has helped to boost investor confidence.


While the rebound is encouraging, some investors remain concerned about its sustainability. In the U.S., we have seen consumer confidence soften, and with it, consumer spending – although it is up slightly after being down at the end of 2018. The Bureau of Economic Analysis also revised GDP growth down to 2.2% from its initial estimate of 2.6% in the final three months of 2018. Many also believe the stimulus effects of Tax Reform on both corporations and individuals are diminishing and then there are those that are concerned with the recent divergence between stock and bond market yields. They typically rise together when investors are confident.


There is no way of knowing what is around the corner. Perhaps Brexit comes to a quick resolution, or the U.S. and China reach an agreement that stabilizes the world economy and boosts corporate earnings. Investors could also continue their optimistic streak. That said, the bull will stop its run at some point. We just do not know when that will be. You simply cannot predict the future. In the words of famous poet Anne Bradstreet, “if we had no winter, the spring would not be so pleasant; if we did not sometimes taste of adversity, prosperity would not be so welcome.”






These opinions are current as of the date of this commentary but are subject to change. The information provided in this commentary does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security.

Index returns reflect the reinvestment of income and other earnings. Indexes are unmanaged. An investor cannot invest directly in an index. The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data shown. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this material. The S&P 500® Index is the most widely accepted barometer of large cap U.S. equities. It includes 500 leading companies. The Dow Jones Industrial Average is a stock market index that indicates the value of 30 large, publicly owned companies based in the United States, and how they have traded in the stock market during various periods of time. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.

1 The Patient Investor, December 31, 2018.
2 The Patient Investor, December 31, 2018.
3 Akane Otani, “U.S. Stocks Rise, Notching Best Quarter Since the Crisis.” The Wall Street Journal, March 29, 2019



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