Did Mary Poppins Return without a Spoonful of Sugar?
January 7, 2019 - As 2018 closed, we were all left with the taste of uncertainty (not sugar) as equity markets continued to lose ground after reaching all-time highs in September. The persistent fluctuation due to increases in Federal Reserve rates, ongoing trade disputes, slowing growth, earnings disappointments, and the more recent U.S. government shutdown of non-essential services has led to a “sell-off” in global equity markets.
Sharp declines in financial markets are disconcerting, especially when it appears irrational in comparison to economic fundamentals. However, HighGround was not surprised by the market sell-off given the lofty valuations that public equities had reached.
To put these declines into perspective, the U.S. stock market generated an average annual return of approximately 13.2% for the ten years ending December 31, 2018. Even including the most recent downdraft, these return levels are still well ahead of our long-term return expectations for public equity.
As we move into 2019, we expect market volatility will likely continue. The same investor concerns of 2018 have carried over into the new year. However, U.S. economic fundamentals are still in a healthy range with growth expected, albeit at a slower pace. Unemployment is at record lows and inflation is in-line with historical averages and is expected to remain stable. We do not believe these fundamentals are indicative of an imminent recession and demonstrate a welcome contrast to the current negative market sentiment.
Here at HighGround, we believe that the best approach is the tried and true approach. We build “all-weather” portfolios that are diversified across multiple asset classes and positioned for the long-term, to ride out temporary market disruptions while maintaining the consistent cash flow distributions you depend on.
We will continue to closely monitor all investment portfolios and provide further updates as market conditions and circumstances warrant. We are here to help provide guidance and support should you have any questions regarding your investments.
In a most delightful way, everyone here at HighGround wishes you a very prosperous new year and we thank you for the opportunity to be your partner.
Joe H. Wright, Jr.
Senior Vice President & Chief Investment Officer