We recently held a round table discussion that featured a couple of Fixed Income and Global Allocation strategists. The format opened with a few comments from each of the participants, and then we jumped right into questions. A big thank you to all who were in attendance, and we hope you found it informative. If you were not able to attend, we will hit a few of the highlights below, following a brief look at the economy and markets.
The first four months of the year recorded the best start for equity markets in 31 years. The unemployment rate here in the US, at 3.6%, is the lowest since 1969. And worker productivity, which has been in a lull, is back at 2014 levels. Our most recent GDP reading came in stronger than expected at 3.2%, while inflation is hovering around a comfortable 1.6% level. Meanwhile, China’s GDP appears to be stabilizing after a period of slowing. Prior to the recent trade talks, announcements from Beijing and Washington had suggested they were going to go smoothly. This news all together gave equity markets the fuel needed to retest their all-time highs.
The week of the talks, however, a different picture presented itself, as President Trump tweeted concerns that China was not holding up its end of the bargain. This caused the markets to sell off about 5% and volatility to spike by more than 19%. Although the recent selloff has some investors worried, we believe that the two nations will eventually work out some sort of deal that will be positive for markets.
During our recent round table discussion, markets were also the primary focus. These renewed trade concerns had not yet emerged, but the major December downturn was still fresh on everyone’s mind. Participants certainly appreciated how the markets had recovered from the December lows. But the discussion focused on issues such as how long this market could continue to run, developments in China and other emerging markets, interest rates, as well as the value of good old-fashion diversification.
Our panelists did a fantastic job of fielding questions and interacting with each other. At one point the Bond Manager gave the Global Strategist a hard time, saying that bond managers in general were the more aggressive market participants, with their high exposure to risky bonds. His own view was that bond portfolios should shift to more secure bonds issued by governments and government agencies. In times of market stress, it would be these government and agency bonds that would provide better protection to investors.
December had forced our panelists and their firms to take a hard look at various market factors, and the result was that none of them saw a recession on the horizon. Never-the-less, they admitted that issues like the UK exiting the European Union without a deal or more US-China trade tariffs had the potential to slow global growth. And while missteps by the Federal Reserve have the ability to dramatically increase market volatility, they felt more comfortable with the Fed’s positioning following its decision to pause rate hikes. The panelists were in agreement that a globally diversified portfolio was prudent. 2019 still appears to have some economic tailwinds in its favor, both in the US and abroad. And while the summer months could be bumpy, they felt that there is a strong possibility that 2019 finishes on the positive side of things.