First Quarter 2019 Executive Summary
Quarterly Executive SummaryWith all major indexes showing double-digit gains for the quarter, Q1 more than made up for a dreadful December (the worst since 1931 for both the DOW and S&P 500). And while economic growth may be slowing, and evident hurdles remain, economic indicators remain mostly positive.
- Earnings Growth. Earnings growth is expected to be negative in Q1 2019 (est. -3.9%), with higher costs compressing profits and the passing of the corporate tax cut anniversary raising the bar for year-over-year growth. Year-over-year revenue growth, however, is estimated to increase to 4.8% for Q1, with nine of the 11 sectors expected to report growth.
- Gross Domestic Product (GDP). Real GDP increased at an annual rate of 2.2% in Q4 2018, down from a 3.4% growth rate for Q3 2018. 2018 real GDP increased 2.9%, up from 2.2% in 2017.
- Unemployment. The national unemployment rate was at 3.8% through February, a slight increase over the previous quarter, but still historically low. February’s unusually low job gains (+20,000 compared to a 2018 monthly average of 223,000/month) may be an anomaly resulting in part from the government shut down and brutal winter weather.
- Consumer Price Index (CPI). The CPI for All Urban Consumers increased 0.2 percent in February, on a seasonally adjusted basis, and increased 1.5% for the 12 months ending in February 2019.
- Consumer Confidence. The Consumer Confidence Index stands at 124.1, a decline from 128 at year end, with market volatility, a partial government shutdown and a weak February jobs report impacting confidence. Despite these dynamics, consumers remain confident that the economy will continue expanding in the near term.
- Housing. After a decrease in December amid higher interest rates and expensive materials and labor shortages, housing starts jumped 11.7% in January. While U.S. homebuilding fell more than expected in February (-8.7% ), decreasing mortgage rates should bode well for the housing markets.
While there is much discussion of an economic downturn, most economists agree that a recession remains unlikely anytime soon. Yes, at some point a recession will happen; however, right now the U.S. economy looks to be in decent shape.
Many economists see trade policy and slower global growth as the primary downside risks to U.S. economic growth; however, a successful U.S./China negotiation would go a long way toward easing the trade-tension drag on the global economy and financial markets.
“The U.S. economy is in a good place,” according to remarks made by Fed Chair Jerome Powell on February 28, 2019, and the Fed’s wait-and-see stance on interest rates (after steadily raising rates since December 2015) has contributed to the markets rebound and increased confidence. The economy may be growing at a slower pace, but we expect it to continue to expand.
As we have said before, none of this impacts our strategy. We continue to focus on fundamentals and adhere to a long-term investment strategy.
That doesn’t change anything we do. If there was a flashing red light, if there was a blaring red light, we would keep investing the same way we do. – Warren Buffet, Chairman Berkshire Hathaway (March 28, 2019)
U.S. Market Performance
Index | March 31, 2019 | Year-To-Date Return |
DJIA | 25,928.68 | 11.15% |
NASDAQ | 7,729.32 | 16.49% |
S&P 500 | 2,834.40 | 13.07% |
Executive Summary Sources:
https://www.bea.gov/data/gdp/gross-domestic-product/04/04/2019
https://www.bls.gov/news.release/pdf/empsit.pdf/04/05/2019
https://www.bls.gov/news.release/cpi.nr0.htm/04/04/2019
https://www.conference-board.org/data/consumerconfidence.cfm/04/04/2019
https://www.census.gov/construction/nrc/pdf/newresconst.pdf/03/26/2019
https://www.wsj.com/articles/fed-chief-jerome-powell-says-u-s-economy-is-in-a-good-place-11551402901/04/03/2019
https://www.cnbc.com/2019/03/28/buffett-on-the-economy-it-looks-like-things-have-slowed-down.html
https://finance.yahoo.com/quote/%5EIXIC/history?p=%5EIXIC
https://finance.yahoo.com/quote/%5EIXIC/history?p=%5EIXIC
The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.