After ten straight quarters of positive earnings reported, Q1-2019 broke the string with a negative earnings report, and a clear indication of a decelerating corporate economic environment.
We are now entering Q2 earnings season and the market participants will be watching the trends coming out of the reports.
Despite the Q1 slow down, last week the market hit a new all time high, propelled in part by the Fed Chairman continuing his signaling that lower interest rates are on the horizon. Where this can become a concern is the potential to create asset bubbles. As much as Congress laid blame of the Great Recession on the banks and mortgage market makers, they had a fair hand in the process with their efforts to create greater home ownership using multiple incentives to consumers and the mortgage market principals.
Our point behind all of this...whenever government wades too heavily into the economy, markets and their drivers, unintended consequences arise.
Nick Maggiulli, in his ofdollarsanddata.com website article "The Price of Admission", discusses the implications of avoiding market draw downs of varying percentages...5%, 15%, greater than 15%.
The conclusion?
1. Diversification - Bonds tend to have an inverse correlation to stocks.
2. Tactical managers that are effective at using trend following may buffer down turns.
3. If your investment horizon is long enough, buy-and-hold prevails, but the time horizon has to be long enough and it takes an investor who can stomach significant draw downs.
4. If your investment horizon (or your stomach) cannot fit the criteria for buy-and-hold, we have multiple tools at hand to buffer the market's volatility. These alternatives have trade-offs...investment upside, cost, or flexibility. But if the use of these tools raises the probability of reaching your goals, they deserve full consideration. That is our goal...design a plan, consider all of the tools, and give you the information you need to make an informed decision.
Kindest Regards,
Dave + Drew