December 24, 2019
“It is not as bad as it was last year. It feels good today.” - CC Sabathia
I know better than to believe that I can cause a butterfly effect, yet I am the slightest bit worried about writing a year end note before the year actually ends. We therefore begin the second annual Nerves, News and Noise with a disclaimer that if the markets get messy over the next five days, it is not my fault.What you will notice about Nerves, News and Noise is that some things are constantly in flux and some things never change.
Nerves
- Last year: Near panic! A year ago, most major global stock markets were either in a bear market or on the precipice of one.
- This year: What, me worry? The S&P 500 has risen over 30% YTD (as of 12/20/19) and the CBOE VIX Index (a common measure of fear in the market) is currently signaling that there is nothing to be concerned about. Contrarians find trouble in this calm. It seems as though most market pundits are in the camp of another productive year in 2020. We tend to agree with that but understand that equity and bond valuations are higher, and the economy is growing more slowly than it was a year ago.
News
- Last year: Trade war and a hawkish Fed! The ideas that the Fed was going to raise interest rates three times in 2019 and that the trade war would continue unabated shook the markets in the fourth quarter of last year.
- This year: The Fed pivoted, and the trade war is calming. Flash forward twelve months and the Fed not only refrained from raising rates, it cut rates three times in 2019. Globally there were over thirty interest rate cuts that provided a boost to financial markets. The trade war news has been good recently; however, much of 2019 showed volatility tied to headlines on that front. The Fed seems prepared to stay on the sidelines in 2020, and China and the U.S. currently seem content with de-escalating the trade war – both of which are good news for investors.
Noise
- Last year: Government shutdown! The impasse in Washington last year brought the government to a halt for 35 days. While painful for those employees furloughed during the holidays, the financial markets took the event for the noise it was.
- This year: Impeachment! On December 18, 2019, the House of Representatives voted to send two articles of impeachment for prosecution in the Senate. The S&P 500 responded by achieving new all-time highs.
Our inclination is to avoid the noise, make note of the nerves and invest on the news. We are heading into an election year, so our expectations for a functional Washington are extremely low. The lack of nerves in the market is something for investors to keep an eye on. However, the news seems to be that the global economy is finding its footing and that central banks around the world are content to maintain accommodative monetary policy.
We wish we could feel confident in saying 2020 would be a repeat of 2019, but that seems unlikely. What we can say is that as things sit now, it looks like a recession will be pushed out at least another year, financial institutions have strong balance sheets and are lending, the government will continue deficit spending, and American workers have jobs and are seeing wage growth. The news is positive with no clear impediments to growth in 2020.
We wish you and your families all the best in this holiday season and look forward to sharing our insights with you in 2020.
Kevin is Cornerstone’s Chief Investment Officer and is involved with the firm’s Investment Policy and Strategic Planning committees. Kevin joined the company in 2000 after graduating from Lehigh University with a B.S. and M.S. in Economics and earned his CFA charter in 2005. Kevin supports many charitable causes and has established a donor advised fund to propagate his philanthropic interests. Kevin lives in Bethlehem with his cats Zola and Charlyne, enjoys woodworking, gardening, reading and travel. Kevin is the proud uncle to many nieces and nephews and loves spending time with and spoiling them.
Disclaimer Notice
This material is prepared by Cornerstone Advisors Asset Management, LLC (“Cornerstone”) and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the published date indicated on the article and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cornerstone to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cornerstone, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
Any accounting or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
The information is provided solely for informational purposes and therefore should not be considered an offer to buy or sell a security. Except as otherwise required by law, Cornerstone shall not be responsible for any trading decisions or damages or other losses resulting from this information, data, analyses or opinions or their use. Please read any prospectus carefully before investing.
This material is prepared by Cornerstone Advisors Asset Management, LLC (“Cornerstone”) and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the published date indicated on the article and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cornerstone to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cornerstone, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
Any accounting or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
The information is provided solely for informational purposes and therefore should not be considered an offer to buy or sell a security. Except as otherwise required by law, Cornerstone shall not be responsible for any trading decisions or damages or other losses resulting from this information, data, analyses or opinions or their use. Please read any prospectus carefully before investing.
