Amazing January Stock Market Rally
After a December that marked the worst month for U.S. stocks since the Great Depression, the U.S. stock market (as measured by the S&P 500® Index, made up of the 500 largest companies in the U.S.) experienced a robust rebound in January 2019, returning 8.01%—its strongest month since October 2015 and only the sixth time that U.S. stocks have returned more than 8% in a month since the market bottom in March 2009 (out of 119 months), according to Standard & Poor’s.
We encourage clients to stay in the market and weather the ups and downs of staying invested. This will reward you with gains in the long term, even if the short term is a bit rocky. Keep us posted on short-term cash needs and how you are feeling about your investments.
What is the Likelihood of a Recession in 2019
To answer this question, experts look at what are called economic indicators to predict market activity. Vanguard expects an increase in market swings but does not anticipate us going into a recession in either 2019 or 2020. We are in a corrective stage but there's still potential for further growth before the normal economic cycle takes us into a downturn. The economy is strong. After a December sell-off, US and international stocks were underpriced. Bonds ended low in 2018. It might not happen right away, but stocks from emerging market countries such as those in Africa, Asia, and South America can pick up, perhaps towards the end of the year.
The Fed is expected to further raise interest rates. It did so in 2018 to cool off an overheated stock market, and we might have one more hike in 2019. These interest rate increases used to come as unexpected announcements by the Fed, but these days the Fed gives clues beforehand and the market is pricing in these increases in advance.
The wild card we have to watch for is trade. Brexit talks and China still add uncertainty. But keep in mind that China accounts for less than 1% of US GDP so it is often an emotional reaction of investors that affects markets rather than a real impact on the economy.
All this to say, we will not likely see a recession this year, but we also won’t see the astounding growth we saw in 2017. As noted earlier, stick with your investments through the ups and downs. It can look scary seeing the numbers rise and fall, but in the long term the market has always trended upward.
Spotlight on Dimensional Fund Advisors’ US Core Equity 1 Portfolio
We introduced Dimensional Fund Advisors’ US Core Equity 1 Portfolio (DFEOX) fund to our portfolios back in September 2018. The investment objective for this fund is to achieve long-term growth. The fund is a diversified index which provides exposure to the entire US stock market. The U.S. Core Equity 1 Portfolio purchases a broad and diverse group of securities of U.S. companies with a greater emphasis on small- and mid-sized companies, under-valued companies, and high profitability companies as compared to the stocks represented on the major US stock exchanges.
The low fund annual expense is 0.19% which is in line with the lower cost funds we use for our clients.
We are using this fund in our investment management clients’ portfolios because as growth slows in the U.S., this fund with its lower cost and profitable companies will reduce risk and increase earnings in client accounts.
Beware of the Latest Spoof Fraudsters
One of our clients shared a personal experience with fraud and we thought it appropriate to share some tips with everyone on safeguarding yourselves in case fraudsters try to take advantage of you. If any bank or other entity calls you, do not provide any information to them! Tell them you will call them back and then call the official number for that bank or entity. There is an app the fraudsters are using that counterfeits phone numbers. They sound authentic and the phone number may even come up as one from your bank. Stay alert and don’t provide sensitive information over the phone unless you are certain you are speaking directly with your bank or financial institution.