The Informed Investor

Quarterly Insights: Q1 2019

Randy Garcia, Founder, ICC

April 10, 2019

Stocks and bonds seldom rise together. Fortunately, 2019 is proving to be an exception along with many other investment, economic, and political precedents in recent years.  Global financial markets have fully recovered from their modest declines in 2018, leading the way to even further gains. The first quarter was the best start in 21 years for U.S. stocks. The past 20 out of 22 times this has happened, the market continued higher for the rest of the year (Ned Davis Research).

Now, everyone is asking where capital markets might go from here. The majority of strategists are convinced that a Trump-China tariff deal will lead to further stock gains. Our firm is hesitant to conclude that such a market rally will prove sustainable. Investors’ captivation with trade talks may have prompted speculators to bid up stock prices in anticipation of a resolution, leading to stronger corporate profits. Overwhelmingly, corporations have been the single biggest reason the market has remained in an uptrend the past few years by borrowing aggressively to buy back their shares. Regardless, the market’s future direction will likely be determined by the degree of growth in corporate profits. Astute investors recognize that increasing corporate profitability is ultimately the backbone needed to support continued advances in stocks.

Should the economy continue growing for at least four more months, it will be the longest economic expansion in post-war U.S. history. The media, and therefore investors, are persuaded that the market cannot continue rising due to this unprecedented timeframe. But history may prove otherwise. Bull markets do not die of old age!