Spring 2019 Quarterly Newsletter
Author: Kristopher Carroll, CFA®, CFP®
Estimated Read Time: 2 minutes
The U.S. stock market has rallied significantly from its low point back in December. While we are generally positive on both U.S. equity markets and the U.S. economy for 2019, we believe that most of the rally in 2019 is simply a reversal of an overdone correction in the fourth quarter of 2018.
The Price-to-Earnings ratio of the S&P 500 is hovering just above its long-term average, closing the first quarter at 16.4 forward P/E compared to an average of 16.2 over the past 25 years. This is evidence that markets are not overpriced despite being at or near all-time highs. Technology stocks continue to lead the markets with healthcare surprisingly showing the lowest returns in the first quarter.
We continue to look forward to a good year and see it as unlikely that the Federal Reserve will raise rates this year. We continue to watch inflation data closely and wage inflation does appear to be trending higher. Inflation risk is significant as continued data indicating inflation could push the Fed to raise rates faster than its current intent. The yield curve continues to be very flat to slightly inverted. A deeper inversion may signal recession, but we do not see high recession risk in 2019.
International markets have generally lagged the high returns in the U.S. and the dollar has been relatively stable against large global currencies. We continue to see opportunities in lower priced stocks overseas. However, global growth looks low in the coming year.
We believe that now is a time to be moderate in your allocation and well diversified globally. As always, if you have questions about your accounts or the financial markets, give your advisor a call.
- The S&P 500 Index is a capitalization-weighted index made up of 500 widely held large-cap U.S. stocks in the Industrials, Transportation, Utilities and Financials sectors.
- Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.
- The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.