As investors find themselves in the most defensive positioning since the financial crisis, global markets continue to defy economic data. Volatility aside, September saw a gain of 1.05%, in a month plagued with political uncertainty, led by talks of impeachment. This month’s issue of The Samra Report focuses on the likelihood of a recession and how investors should position their portfolios going into 2020.
During the later stages of a bull market, investors tend to pay less attention to fundamentals, and focus on market sentiment and technical analysis. The August issue of The Samra Report: “When to take your gains off the table”, highlighted year-to-date performance of 18%. As September closes out at 18.74%, investors are easily spooked, with talks of impeachment, creating volatility. At Samra Wealth Management, we expect the volatility to continue throughout the remainder of the year, however, find it unlikely that the United States will fall into a recession due to two factors: Fundamentals continue to hold strong, while the President has been able to move markets via Twitter.
Fundamentally, things look good: “for Q3 2019, of the fourteen S&P 500 companies that have reported earnings, twelve have reported a positive EPS surprise”. Furthermore, the forward 12-month P/E ratio for the S&P 500 is 16.8, only slightly above the 5-year average of 16.6. Regardless of the political divide, President Trump has shown his ability to lead; rounding-up house and senate republicans, with few rouge factions questioning his leadership. Ironically, with no plan details, fragmented responses and an inflated ego has led to the President taking a dynamic approach on most issues. An approach, in our opinion, that is likely to stimulate the U.S. financial markets and economic climate until the 2020 Presidential election, delaying the probability of a recession.
At Samra Wealth Management, there is no change in our consensus, and we believe investors should continue to invest with a risk-on focus, utilizing a sector rotational strategy. With low interest rates continuing to drive markets, and the President showing a bias towards Wall St, it is likely we will see favorable changes towards reserve ratios, allowing monetary policy to continue to drive U.S. financial markets. Although talks of impeachment may be affecting markets in the short-term, we believe this political strategy will waiver in the coming weeks, leading to new all-time highs. By the end of Q2 2020, investors should reallocate to a defensive strategy, and a flight towards quality.
Addressing the U.S/China trade war, which has impacted global trade and financial markets. This far into a bull market, investors need to understand the market does not need a resolution. Alternatively, the market needs investors to believe to a high probability that a deal is likely.
References
Bloomberg.com. (2019). Bloomberg. [online] Available at: https://www.bloomberg.com/markets/stocks [Accessed 30 Sep. 2019].
Butters, J. (2019). Factset. [online] Factset.com. Available at: https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_092719.pdf [Accessed 30 Sep. 2019].
Samra, I. (2019). When to Take your Gains off the Table. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/when-to-take-your-gains-off-the-table [Accessed 30 Sep. 2019].
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.