January Recap and Portfolio Changes

At the time of our last newsletter we were in the midst of a pronounced selloff in the market.  In that newsletter we covered some of the forces that were driving the sellers and pushing the buyers away. We have seen some of these forces dissipate in tandem with the market’s climb over the last month.

Many of the potential buyers who were uninvolved during the holiday season have reentered the market to take advantage of more attractive valuations in equities.  Another force that has become more favorable since the New Year has been sentiment around the Fed.  While many believe the Fed acted hastily in its prior interest rate announcement, that perception has shifted towards a belief of a more dovish Fed outlook on policy going into 2019; meaning less rate hikes than previously predicted.  That outlook was solidified during today’s Fed decision to leave hikes unchanged along with rhetoric that reaffirmed optimism in a healthy economy.  Even more promising is the fact that this rapid rise in the S&P 500 (6.41% Year to Date as of January 28) occurred despite the government shutdown, which has since been temporarily put on pause.

Despite these positive developments, not every hurdle we described in December’s newsletter has been resolved.  One could argue that the two biggest risks still remain.  We still do not have a trade deal with China or even any promising details of a potential deal.  While most see a positive resolution to this trade dispute as the most likely outcome, the risks to the market from a continued standoff still exists.  American and Chinese leaders will be entering high level trade talks this week and the outcome of these talks will be heavily scrutinized by investors on both sides.  The US appears to have the most economic leverage over the situation given the continued positive domestic economic data.  While the US stock market suffered mightily at the end of 2018, the Chinese economy faces more pressing structural impediments.  One telling quote many feel summarizes the situation is this: “When we cannot trade with China we sneeze, if China cannot trade with us they catch pneumonia.”

In addition to this, the Mueller investigation continues to charge forward into February with President Trump’s former campaign official Roger Stone arrested by the FBI and later pleading not guilty.  Will these unsettling developments lead to a “smoking gun” connected to the President?  It is impossible to know at this point, but with February quickly arriving we should learn one way or the other soon enough.  Until then, it is a risk lingering over the market.

Finally, despite being temporarily reopened the risk of a second government shutdown is a real possibility.  No constructive progress or compromises have yet to occur between Republicans and Democrats in Congress.  This temporary reopening was more of a band aid to get furloughed government workers paid and services back in place.

In response to the current market climate we are taking the opportunity to make some adjustments to our TAAP Portfolios.  These updates to the portfolio will reposition us for the near future, and as always, we will continue to diligently monitor the markets for new opportunities or hurdles that warrant further changes.

As always, if you have questions please do not hesitate to contact us by phone or email.

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