Fall 2019: Market Update Recap

For those of you who were unable to join us for Allegiant’s Quarterly Market Update held on October 24th at Selby Gardens, we wanted to provide a recap of the night’s events.

The first portion of our presentation was an economic and market update provided by President and Chief Investment Officer, Ben Jones, CFP®, AIF® and Portfolio Manager, Luke Nicholas, CFA, CFP®. The team started off the night by acknowledging the unprecedented level of geopolitical uncertainty that is facing markets today. From the ongoing trade war between the U.S and China to the U.K. teetering on the edge of a “hard” Brexit and the ongoing tension in the Middle East, it is enough to make your head spin. While this political uncertainty is something to be cognizant of, much of it is just noise. 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. 

Diving into the economy, the team went through Allegiant’s Economic Dashboard. While overall growth has remained solid so far this year, there are signs that economic growth is slowing, and downside risks are increasing. The 2018 tax cut stimulus has begun to fade, which is driving growth back down to the anemic levels that we have seen for much of this expansion. 

The team then turned to recent developments in the stock market. Despite the high level of geopolitical uncertainty and signs that economic growth is weakening, the stock market remains right around all-time highs. The Allegiant team pointed to two main factors that have contributed to the ongoing strength in the stock market. The first is that the Fed has stepped back into an accommodative monetary policy by cutting interest rates. Second, the fact that growth has slowed is not enough to presage a recession. “Slow growth is different than no growth.” Economic growth has been quite weak for much of this cycle, yet markets have done quite well. So, who is to say that this cannot continue? 

The bottom line from the economic update? Overall the economy remains on decent footing, however growth is slowing, and risks are elevated. Because of this, the investment team has begun to take steps to make accounts slightly more conservative where appropriate. The good news is that our client portfolios are well positioned to weather whatever economic storms may be on the horizon. 

Following the conclusion of the economic presentation, we transitioned to the financial planning portion of the evening. Principal and Wealth Advisor Director Carl A. Watkins, CFP®, AIF® proceeded to discuss ways to maintain an all-weather financial plan, both now and when the next recession hits. 

Carl focused the beginning of the presentation on investment risk tolerance. It is a good time to review your risk tolerance taking into consideration any updated cash needs or goals. One probing question about risk tolerance everyone should ask themselves is how they handled the near 20% market drop during the fourth quarter of 2018. How you felt during that time, or if you reacted to the decline, is valuable information guiding us as we manage your portfolio to meet your goals. 

It is also helpful to examine your current and upcoming spending needs. Having a plan to fund these withdrawals is important but becomes even more valuable during market downturns. Having flexibility in your spending pattern allows your portfolio time to recover, without being forced to sell securities at lower values. Carl also mentioned the important role outside resources can have on the portfolio’s success. Having cash reserves available buys flexibility. However, even without cash reserves there are other options available, including a Home Equity Line of Credit or a Non-Purpose Loan. These can play an important role as a temporary back-up plan. 

The discussion on spending flexibility transitioned to the next theme – what to do with excess debt. If you are currently maintaining excess debt, then now is a good time to consider how manageable that debt is if, and when, markets are down. Creating a plan to pay off excess debt now, after a 10-year bull market, can have a significant impact on your success during the next recession. 

Ultimately, through good times and bad it is important to focus on your financial plan and not allow news headlines to derail your long-term financial success. Many times, media headlines are just noise. 

To conclude the evening, Carl reiterated that Allegiant is your thinking partner and we are all here to help you as your plan evolves.