• Important Disclosures
  • Form CRS
Inlet Private Wealth
  • About
  • Wealth Solutions
  • Trust Services
  • Library
  • Contact
  • Client Login
  • Menu Menu

Trumped

April 24, 2019/in Articles/by Ted E. Furniss, CFA

2018 was a great year for the U.S. economy as unemployment fell to a 50 year low of 3.7%, gross domestic product grew more than 3% and with an assist from a reduction in the tax rate, corporate earnings grew about 22%. Unfortunately, the economy is not the financial markets and the financial markets are not the economy as all major market indexes declined in value during the year. In particular, the S&P 500 experienced its worst year in a decade and while its total return was down “only” -4.4%, the decline felt worse as the market experienced a wipe out of $4+ trillion in value from its highs or roughly 20% of annual U.S. GDP. The much ballyhooed FAANG trade, Facebook, Amazon, Apple, Netflix and Google all declined into bear market territory, collectively shedding $1.1+ trillion from their highs. In addition, small cap stocks and emerging markets entered bear markets. From our perspective, the recent decline in the equity markets has largely been due to the following factors:

  • For the first time since 1994, cash outperformed both stocks and bonds. Cash yields today are higher than the dividend yields of about 60% of the S&P 500. Income investors have gone from an environment of TINA (There Is No Alternative – to equities) to MEAN (Many Equity Alternatives Now).
  • The markets have been signaling to the Fed that it needs to stop raising interest rates but until recently, the Fed has remained committed to “normalizing.” Unlike former Fed Chairs Greenspan, Bernanke or Yellen, Chairman Powell has seemed relatively unconcerned with financial market declines.
  • Trade war rhetoric has evolved into a real world drag on growth globally and there is a increasing risk that the U.S. will be pulled down by slower growth overseas.
  • Program trading – according to the Wall Street Journal, 85% of all trading is now on autopilot via machines, models or passive investing formulas. Behind these models are algorithms or investment recipes that automatically buy and sell based on pre-set inputs. One of the primary “ingredients” in these algorithms is momentum. When markets turn South, they are programmed to sell. If prices drop further, many are programmed to sell even more – regardless of fundamental valuations.

One positive of the market decline is that valuations have become more attractive but it also suggests a disconnect between what the financial markets are signaling about the economy and most economic data. From our perspective, the factors highlighted above trumped fundamentals resulting in a bull market for earnings and a bear market for valuations. The S&P 500 should earn about $175 in 2019, suggesting an earnings growth rate of 8% and a P/E multiple of 14x, its historical average. However, the recent volatility in the markets has caused several individual companies to become attractively priced within the S&P 500 and likens its average P/E of 14x to the proverbial statistician who drowned in a lake that – on average – is only two feet deep. This has created an environment where active managers focusing on valuations should outperform. In addition, we think Inlet Private Wealth®’s active investment approach of focusing on the fundamental valuations of companies is well suited for more volatile environments. Given Brexit’s March 29 th deadline, ongoing trade negotiations, the government shutdown, a divided Congress and slowing global growth, 2019 seems likely to be a year of elevated volatility.

Share this entry
  • Share on Facebook
  • Share on Twitter
  • Share on LinkedIn
  • Share by Mail
https://inletprivatewealth.com/wp-content/uploads/2018/06/blue_overlay_2.jpg 1330 2000 Ted E. Furniss, CFA https://inletprivatewealth.com/wp-content/uploads/2022/10/Inlet_Logo.png Ted E. Furniss, CFA2019-04-24 15:43:342022-12-22 15:41:57Trumped

Recent Posts

  • Settling Estates with Trusts – An Overview – December 2022December 6, 2022 - 11:47 AM
  • Giving with Impact – November 2022November 28, 2022 - 12:54 PM
  • How to Position Life Insurance EffectivelySeptember 22, 2022 - 3:31 PM
  • What’s in a (Trustee’s) Name? August 2022August 15, 2022 - 2:31 PM
  • Halftime 2022July 22, 2022 - 3:59 PM

News Archive

  • 2022
  • 2021
  • 2020
  • 2019
  • 2018

Categories

  • Articles
  • News
  • Quarterly Market Commentary
  • Trust Article
Inlet Private Wealth®

About
Wealth Solutions
Library
Contact
Client Login
Disclosures

(561) 781-0400 Main

(561) 781-0407 Fax

     

116 Intracoastal Pointe Dr.
Suite 400
Jupiter, FL 33477

Get Directions

Inlet Private Wealth®, LLC is a
registered investment advisor

Inlet Private Wealth, LLC (“Inlet Private Wealth”) is an SEC registered investment adviser with a principal place of business in Jupiter, Florida. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed on SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Inlet Private Wealth may only transact business in those states in which it is registered, notice filed, or qualified for an exemption or exclusion from registration or notice filing requirements.

Inlet Private Wealth’s website is limited to the dissemination of general information regarding its investment advisory services to United States residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Inlet Private Wealth’s website on the internet should not be construed as Inlet Private Wealth’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice, over the internet. Furthermore, the information on this internet site should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from Inlet Private Wealth. Any subsequent, direct communication by Inlet Private Wealth with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Inlet Private Wealth, please contact the United States Securities and Exchange Commission on their website at www.adviserinfo.com.

Market data, articles and other content on this website are based on generally available information and are believed to be reliable. Inlet Private Wealth does not guarantee the accuracy of the information contained on this website.

A copy of Inlet Private Wealth’s current written disclosure statement discussing Inlet’s business operations, services, and fees is available on the SEC’s website at http://adviserinfo.sec.gov or you may contact us to request a copy. If you have any questions regarding Compliance and Regulatory information, please contact us.

ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE LINKED TO THIS WEBSITE.

Scroll to top