June 1st, 2019
Market Commentary (Key items you need to know):
- Market Outlook by Ronald E. Lang
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Key items you need to know –
Since we last wrote the May 1st Newsletter, the China Trade deal has stalled, the yield curve is closer to getting inverted on the 2-year and 10-year Notes and many major investment houses have said the U.S. economy has already begun to slow down. You read or hear Headline News. This is what’s pushing the markets around and creating more volatility than normal. The markets have been on a downslide going on six weeks in a row and despite a Q1 2019 GDP of 3.1%(revised), the pundits are out the pounding the table about a recession in 2020. For those avid readers of our newsletters, we have been telling you over a year that an economic slow down will occur either starting in late 2019 or by mid-2020 the latest. The White House can keep trying to pump adrenaline into a body on life support (i.e. the U.S. economy), before it has to reset itself (credit purge) during a recession. First, it was the anticipation of a business friendly administration, then Tax Reform and the hopeful China Trade Deal (and other trade deals). Eventually, every economic cycle comes to an end and can only prolong it just so much. The longer an economic cycle is extended, the longer the recession. The average Bull Market is 6 – 8 years, a recession lasts 5 – 7 months, but the recession usually feels like 1 -2 years depending on the business or industry you are in to reset itself. Lastly, Capital Expenditures, which is a significant economic indicator of spending with large companies, have been slowing. All this information doesn’t mean the breaks will be hit right away, it will take time. We are sticking to the timeline we provided over a year ago and predict the recession should hit by the next Presidential Election, the latest.
Remember, many parts of Europe have been teetering on a recession for a while and despite all the headlines from the U.S., our markets are still the best place for international money to invest. This is another reason why our markets have been propped up for a while and will continue to see money flow from international investors. The 10-year Bund in Germany has a “negative yield”. This means investors are getting a negative return in order to invest their money in a safe investment. Not a good sign for Europe.
How to Invest in This Market
Every investor is different based upon their life stage, time horizon and their risk tolerance. If you have been watching the markets, there is a lot of investment rotation going from consumer staples, technology and manufacturing into defensive stocks (utilities and blue chip stocks paying a good dividend). If you are looking for income, there are some very good and select Preferred Stocks that should be considered. With the Bond Yields coming down, that means their Premiums are rising and may not be worth paying those premiums and paying the taxes based on Ordinary Income from Interest received. Many IPO’s over the last year that were highly-touted hit the markets with a thud instead of fanfare! Many are still trading below their issued price and some significantly lower. If you are looking to retire in the next 5 – 10 years, you need to pull risk out of your portfolio over the next year, but it doesn’t have to be done in a wholesale change if you have many winners or they are still in an uptrend. If your horizon is 10 or more years, you will be able to ride out the next recession, but you should still take out the highest risk in your portfolio in the next 6 – 12 months for consideration. Again, if they are still in an uptrend, no reason to get out now, but you can put in a stop in order to set a floor on your gains and lock in profits.
There are many industries that are always good to invest in such as Water and Garbage. As I have been telling clients for many years, we will always need water and we will always generate garbage. We will continue to need telecommunications and Wifi. Even though we are using less cash in place of paying with Credit Cards or Electronic Payments more an more, the digital pay companies will be an excellent long-term investment. This is the same with the Robotics and Artificial Intelligence (AI) industries. This isn’t something new, but the technology is finally getting more mainstream and will be a significant part of our lives over the next 5 – 10 years. Consider those possible investments as our economy slows and stay ahead of the curve. On pullbacks in the market, there are many opportunities to build a position in these industries.
In Summary
It feels like summer and many people are already day dreaming about the warmer weather and vacation plans. Make sure you find some time for yourself to relax and reboot. Mental Wellness is more important than Financial Wellness and you have the power to make it happen. Remember, you have to keep an eye on your company 401(k) account in addition to what you have invested outside of work. You may have limited choices, but there should be options for more risk-adverse investments. We aren’t advising you to NOT pay attention to the Headline News, we are advising you don’t get emotional about every single headline. Most are insignificant to your life and financial well-being. If you truly are concerned, send us an email or give us a call like you always have done. Remember, you have a life to live and a family to support and that is where your main focus should be. Make your vacation plans now if you haven’t already and looking forward to speaking to you soon.
Authored by
Ronald E. Lang, Principal
Atlas Wealth Management, LLC
Investment Advisors & Estate Planners
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