Market Update: Brad McMillan’s January 2019 Presentation 

For those unable to join us for Allegiant’s Quarterly Market Update at Selby Gardens on January 17, 2019, we had the pleasure of hearing a presentation from Commonwealth Financial Network’s Chief Investment Officer, Brad McMillan CFA®, CAIA, MAI. Brad is a frequent commentator on financial markets, U.S. economic policy, and the global economy for a range of media outlets, including the Wall Street Journal, CNBC, CNN International, Barron’s, and Bloomberg News. 

Brad’s presentation, entitled “Beyond the Numbers,” covered a broad range of topics. He examined recent stock market performance and the current state of, and outlook for, the U.S. economy.

In particular, Brad reviewed the sharp fourth quarter selloff in U.S. stocks. From its peak in late September to the bottom in late December, the S&P 500 was down almost 20%. What caused such a sharp move? Brad explained that the decline was primarily driven by political factors. During the quarter, trade tensions between the U.S. and China intensified, the Federal government was shut down, and the U.K. teetered on the edge of a “hard” Brexit.   Despite all this, the Federal Reserve raised the Fed Funds rate. No wonder the stock market has been volatile! 

Brad acknowledged that this political uncertainty is a cause for concern. However, during times like this the most appropriate thing for investors to do is take a step back and examine what really matters, the underlying economy. 

While many economic commentators have been asserting that recent stock market volatility is presaging an imminent U.S. recession, Brad explained that the economic data simply does not support that notion. Brad walked through various economic indicators, examining everything from job growth to consumer and business confidence. The conclusion was that the U.S. economy is still quite strong. Many of the indicators are actually at their strongest level in years. It is true that some areas, particularly those sensitive to higher interest rates, have started to show some signs of weakening. However, the bulk of economic data is still consistent with positive economic growth.

Brad went on to say that solid economic data does not rule out further volatility. In fact, volatility in the stock market is not a surprising development at all – it is absolutely normal. Brad explained that in half of the years since 1980, the stock market declined by over 10% at some point during the year. So, while fourth quarter volatility may feel unfamiliar to investors, it is actually quite ordinary.  Most significant, if those pullbacks are not accompanied by a recession, they generally do not last long. With economic data still solid, the conditions for a protracted bear market are simply not in place.

As always, economic data can change at any time. Ten years into this economic expansion, it is more important than ever to diligently watch for signs that conditions are deteriorating. As stewards of your capital, the team at Allegiant is doing exactly this. We are continuing to look for signs that cracks are starting to form while constructing client portfolios built to withstand whatever economic storms may be on the horizon, even if it waters are currently calm. As John F. Kennedy said, “The time to repair the roof is when the sun is shining.” 

If you would like to follow Brad’s blog, click here to read his most recent updates on The Independent Market Observer.