2019 3rd Quarter Investment Bulletin

During the 2nd quarter of 2019, the stock market (Wilshire 5000) added approximately 4% to push the 2019 return to 18.62%.  The bond market also experienced meaningful growth as interest rates declined.  U.S. bonds increased 3% during the quarter, and now have risen 6% during 2019. 

As the stock market continues to reach and exceed all-time record highs, we are maintaining a cautiously optimistic asset allocation for investment portfolios.  Diversification has allowed us to participate meaningfully thus far in 2019, but prepares our clients for inevitable volatility.

We contend this is the proper positioning for several reasons. 

• Following a decade long bull run in stocks you have more dollars at risk in your portfolio.  The last 25 years has shown us that limiting losses during deep declines is extremely valuable to your longer-term goal of wealth accumulation.  

• The bond market is signaling worry as the stock market soars higher.  The decrease in yields is a flight to safety in the face of a soaring stock market.  Bond yields have been flattening and inverting for the last year or so.  The inversion in the yield curve has historically been a good predictor of economic turmoil.  The chart below shows the yields on 3-month, 2-year, and 10-year Treasuries at various points this year. 

• Macroeconomic indicators continue to trend positively, with little sign of inflation.  The economy, despite some headwinds, continues to expand.  There are undoubtedly challenges and volatility on the horizon as we enter a presidential election year, but there are many bright spots which continue to drive growth.  While we doubt the stock market can continue to grow at its current pace, we have many reasons to believe it will continue trending positively and we are readily prepared should the environment change drastically through year-end.