Planning Beyond a Market High

Planning Beyond a Market High - Marshall Financial Group

What’s Next? The Equity Market has been strong, year to date.

As you enjoy the summer months with vacations and time spent with friends and family, we continue to monitor and implement strategic portfolio decisions for optimal performance. Many investors are relishing in the year to date market performance. We also are pleased with these returns (although we would prefer less volatility), but our focus is now on the future and planning appropriate investment strategies moving forward.

US stock market indexes have moved to new record highs in July, however, they are only slightly above the levels reached in January of 2018. Investor sentiment has been lifted recently by the perceived reduction in the trade tensions with China coupled with a widely share belief that the Federal Reserve will cut rates later this month. The recent G20 summit resulted in reduced near term tensions, but did not reduce the currently imposed tariffs, so uncertainty remains. There appears to be strong sentiment on Wall Street that the Federal Reserve will reduce interest rates in their upcoming meeting at the end of this month. The marketplace seems to have priced in the potential benefit of this rate cut, but might be disappointed if the current and possible future cut(s) are not as large or as numerous as anticipated.

In other words, when the market experiences unanticipated positive events it will typically translate into positive returns. When the market is disappointed or surprised, it manifests in volatility and possible retraction.

We are in the longest economic expansion in US history. The current expansion began in June of 2009. 1 Does this mean that the recent record close of the Dow Jones Industrial Average and of the S&P 500 signal the potential “high” to the current expansion and a beginning to an inevitable recession? If we had the proverbial “crystal ball” we would be able to answer that question. As a crystal ball is not currently available (even to advisors!), we rely on experience, monitoring of economic indicators and extensive research to guide our decision making.

At Marshall Financial Group we monitor many market indicators that influence the portfolio management decisions that are made. Even as the market reached an all-time high, we noted several newly cautionary economic indicators for both job sentiment and manufacturing as well as a potential recessionary economic indicator for commodities. It is important to note that we continue to observe indicators of expansion in an additional six economic variables.2 Does this mean the end of the cycle is here? We don’t think so, but it is probably closer today than it was last quarter.

This might lead an investor to consider the idea of “timing the market”. In other words, selling investments when you think the market is “high” in hopes of locking in profits. Then (if you could predict the future) reentering the market once the stock market hits the “bottom”. The reality is that it is impossible to anticipate market movement with 100% accuracy and this plan fails to include the psychology behind investor behavior. There is a wealth of historical research that would dispute that the average investor will be able to perfectly execute this plan. In fact, in reviewing annualized returns for the 30 years between 1987 and 2016, remaining in a fully invested portfolio of the S&P 500 Index generated an average return of 10.2% while the average investor experienced a return of just 2.6%3.

We believe that our clients are by no means “average”, however, the lesson here is an important one. Long term investing requires consistency and the avoidance of emotional decision making. Our portfolio management decisions incorporate both the current and potential future economic environments. Therefore strategic changes may be warranted to reduce risk, capitalize on opportunities, or realign the portfolio in light of economic changes.

We cannot predict where the S&P will end 2019, however, we are confident that long term, prudent investing has the potential to significantly outperform the “average” investor. We anticipate that market volatility will continue and could in fact, increase as we move toward a presidential election year in 2020.

We recommend that our next strategy meeting include a review of long term strategic equity and fixed investment allocations, as well as a discussion of any updates to your level of comfort with the current risk level in your portfolio, in light of the market volatility we have experienced over the last six to twelve months. Since we believe that the market will continue to experience volatility, it could be an excellent time to incorporate needed changes. As always, please feel free to contact us prior to this meeting with any questions or concerns that you may have.

Our goal is to provide returns to our clients within the risk framework that fits their comfort level, meets their goals and allows them to sleep at night.

Happy Summer!


The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results

1. As of June 30, 2019. Source: FactSet.

Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. ©2019 Legg Mason Investor Services, LLC, member FINRA, SIPC. “Anatomy of a Recession” is a trademark of ClearBridge Investments, LLC. Legg Mason Investor Services, LLC and ClearBridge Investments, LLC are subsidiaries of Legg Mason, Inc. All investments involve risk, including loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed-income securities falls. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.

2.Data as of June 30, 2019.Source: BLS, Federal Reserve, Census Bureau, ISM, BEA, American Chemistry Council, American Trucking Association, Conference Board, and Bloomberg. ©2019 Legg Mason Investor Services, LLC, member FINRA, SIPC. “Anatomy of a Recession” is a trademark of ClearBridge Investments, LLC.

3. Source: Bloomberg, Dec. 31, 2016. Average asset allocation investor return is based on an analysis by DALBAR, Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Indices for U.S. Stocks are represented by the S&P 500 Index. Indices are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance is no guarantee of future results.