Reviewing Economic & Market Conditions & Important Financial Topics with Brad McMillan

Brad McMillan CFA

For those of you who were unable to join us for our Quarterly Market Update at Selby Gardens on January 25th, we had the pleasure of hearing a presentation from Commonwealth’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 range of topics, primarily examining the current state of the U.S. economy and what the next couple of years may look like.

Before diving into the economic data, Brad gave a quick lesson to the audience that he entitled “How to worry effectively.” He explained how individual investors can drive themselves crazy by focusing on the day-to-day doom-saying of the financial media, as the media constantly attempts to rouse investor fear to increase readership. By shunning the daily news stream, and focusing instead on underlying economic data (or allowing the team at Allegiant to focus on that data for you) investors not only improve their sanity, but also their long-term investing success.

Turning to the economic data, Brad examined everything from job growth to consumer and business confidence. The conclusion was that things appear to be pretty good right now. After eight years of uninterrupted job growth, consumer and business confidence are at their strongest levels in decades and the stock market is at an all-time high. Like I said, things are pretty good! However, the moment when people are feeling the best often turns out to be a great time to step back, and remember that all economic expansions eventually come to an end. This is exactly what the team at Allegiant has done in recent months, using the strong run-up in the stock market as an opportunity to book profits for clients where appropriate, and rebalance portfolios back to their long-term allocations.

Brad went on the say that in financial markets as with most things in life, you can learn a lot about the future from the past. In this case, the past he is referring to is the stock market boom and subsequent bust of the late 1990s and early 2000s. By overlying charts of current economic data with charts from that time period, Brad showed numerous similarities between today’s economic and market conditions and those of that time period. If things were to progress like they did in the late 90s, it would leave the U.S. economy in a recession within the next year or two. While this is not a certainty, the Allegiant Investment Team agrees that the risk of a U.S. recession within the next couple of years is a distinct possibility. We anticipate things to remain pretty solid for the first half of 2018, but as the one-time year-over-year benefit of the tax cut begins to fade later this year, we will need to keep a close eye on incoming economic data.

In short, while the economy appears in great shape right now, this may end up being as good as it gets for this economic expansion. Although counter to investor instinct and behavior, when everything appears at its best, investors are wise to begin planning for the eventual downturn.

Please click here to review Brad’s complete presentation.

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