Wealth & Pension Services Group
William Kring, CFP - CEO & Chief Investment Officer
August 24, 2018
As we approach the end of summer, I thought I would take some time to reflect on the state of the markets and provide some thoughts as to where things may go from here.
A glass-half-full or half-empty?
As I write this, there is much to like and dislike in the investing world. In the “like” camp, the domestic economy is doing well, retail sales are strong, employment is low, and inflation, while stirring, is still manageable. All in all, a good backdrop for investing. In the “dislike” camp, we have stretched valuations, a narrow market with a few stocks driving most of the gains, and a global economy that started to percolate last year, but then sputtered on a slowing China and followed by trade issues. No clear winner, here.
Diversification matters - but is never perfect
Given the proverbial tie, we look to diversification for some comfort. Unfortunately, the pillars of diversification don’t always provide the ideal investment solution . Bonds are flat to down this year with rates rising, cash is still not paying much (but improving), and inflation-fighting commodities started the year strong, but have failed this summer. Further, developed international markets are struggling, and emerging markets have been dragged down by a strong dollar. Finally, the S&P just got back to the January highs.
It’s impossible to say, but given the scenario, limiting risk “somewhat” and staying diversified still makes sense. Why? Value stocks may finally begin to trump growth stocks. Given lower valuations in Europe and Asia, international exposure is still reasonable. Bonds are still necessary as a lever in case things turn down. Finally, more defensive sectors like financials and healthcare may start to outperform other growth sectors later in the cycle.
I know many have expressed concern about “getting out.” That same thought has been espoused by many experts over the last several years, only to be proven wrong. So finally, here is the forethought; we may be getting close to a top, with either a correction or a lengthy spell in a trading range. Either scenario should bring the market back to better valuations and solid ground. For now, we will stay diversified and look for coming changes in the economy, investor sentiment and company earnings. No significant portfolio changes are scheduled (soon, perhaps) and we will stay diversified according to your risk tolerance and objectives. As always, please reach out if you have any questions or concerns.