Q1 2019 IN REVIEW
COMMENTARY
roughly $300 billion is still giving the economy a boost. Together, these bode well for an increase in business investment, which tends to lead to greater productivity and profit growth, keys to extending this economic expansion.
After the worst December since the Great Depression, and one of the worst quarters in years for stocks, the S&P 500 had its best first quarter since 1998. In March we celebrated the 10 year anniversary of the current bull market. Although the US economy seemed to have hit a soft patch to start 2019 the fundamentals supporting economic growth and corporate profits lead us to believe the bull market and this economic expansion will continue in the near term. While stocks rallied in the first quarter following the sharp December decline, expectations for first quarter gross domestic product (GDP) appeared to dampen and stand at about half the pace that it did last year. Seemingly slower GDP growth was due mainly to sentiment involving the lingering effects from the government shutdown, bad weather, U.S.-China trade tensions, and slower growth overseas—particularly in Europe. The good news is these temporary headwinds are expected to clear, setting up a potential pickup, albeit slower, in economic growth in the second quarter and beyond. In addition, the U.S. consumer spending outlook remains solid, buoyed by continued gains in employment and wages. A U.S.-China trade deal, a persistent roadblock for business spending, could be finalized in the coming weeks or months, which should help business confidence and spur capital investment. At the same time, last year’s package of additional government spending of
It wasn’t that long ago that some economists and investors were seriously concerned about US growth going negative for the first quarter. Now, it looks like real GDP is growing at a much faster pace than projected furthering our conviction on the near-term health of the economy. Like April showers that bring May flowers, we maintain our positive outlook for 2019. But that doesn’t mean a storm or two might not also come through in the form of increased market volatility. We do think stocks will be higher at year end than they are now, despite weathering potentially slower economic and earnings growth. We expect U.S. growth to stabilize and slow slightly, and that inflation may creep higher as the risks subside. Overall, we still see plenty of evidence that solid U.S. fundamentals are firmly planted and a recession is unlikely on the near-term horizon. As this year progresses not only do we anticipate earnings to be better than expectations, but we think economic data will improve as well. Stay invested in an appropriate mix of stocks and income oriented investments because in the long run, that’s the way to create wealth. Below you will see a review of the major indexes performance for the quarter and represents US Stocks, International Stocks, and the U.S. Total Bond Market - all were nicely positive for the quarter. To your right are a few charts you might find interesting and support our contention of a solid and still growing US economy. Enjoy!
S&P 500 TOTAL RETURN MSCI ACWI EX USA TOTAL RETURN BARCLAYS US AGGREGATE TOTAL RETURN
TOTAL RETURN Q1
13.65%
12%
10.44%
% Change
9%
6%
3%
2.94%
0%
-3% January 2019
February 2019
March 2019
Q1
2019
ECONOMIC CHARTS & NOTES CONSUMER SENTIMENT The preliminary University of Michigan
consumer sentiment reading was 96.9 in April, consistent with the same month’s readings in the prior two years. Retail sales growth eased to 2.1% in February following a 2.6% January increase. 3Mo Moving Avg Yr/Yr %
EMPLOYMENT The U.S. unemployment rate came in at 3.8% in March
unchanged from the previous month and in-line with expectations. March Nonfarm payrolls increased by 196 thousand in following February’s meager, government shutdown-related increase of only 33K.
Consumer Sentiment
6%
6%
90 4%
85 80
3% 75 70
2% Jan '17
Jul '17
Jan '18
Jul '18
thousand jobs added in February. Job openings data was also supportive of a strong domestic labor market.
Retail Openings
210 4% 140 3%
70 0 Jan '16
Jul '16
Jan '17
Jul '17
Jan ' 18
Jul '18
Jan '19
CONSUMER PRICE INDEX (CPI) Inflation in the U.S. is tame as
evidenced by the latest consumer price index (CPI) reading of 1.9%, the 4th consecutive month of sub 2% inflation. Core inflation, exlcusive of food & energy, is right at the Fed’s 2% long-term target. CPI All
CPI Less Food/Energy
Retail Hires
1200
3.0%
1000
2.5%
800
2.0% Y/Y %
Amount in Thousands
280
5%
2%
Jan ' 19
JOB OPENINGS & HIRES Retail hiring remained robust with 767
350
600 400
1.5% 1.0%
200 0 Jan '18
Jul '18
Jan '19
Monthly Employment Change
95
Unemployment Rate %
100
5%
NonFarm Payroll
Unemployment Rate
Consumer Sentiment
3Mo Moving Avg Yr/Yr %
IN REVIEW
0.5% Jan '16
Jul '16
Jan '17
Jul '17
Jan '18
Jul '18
Jan '19
ECONOMIC CHARTS & NOTES WAGES & SALERIES Average hourly earnings for all private U.S. employees
was up 3.2% in March slightly below the 3.4% consensus expectation. Wages & salaries, which make up 70% of compensation costs, have shown remarkably consistent growth near 3% in the past several quarters. The combination of higher earnings and low inflation has enhanced the purchasing power of the consumer. Employment Cost Index
CONSUMER SPENDING Disposable personal income was higher in February compared to January and up 3% year over year. Consumer spending bounced back a bit in January after December’s disappointing 2% reading. Overall, U.S. consumer data is indicative of a healthy, modestly growing economy.
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
Year-over-year
Quarterly Year-over-Year
Disposable Income
Consumption
Average Hourly Earnings
2.5% 2.0%
2.0% 1.5% 1.0%
1.5%
0.5%
1.0%
0.0% Jan '16
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
US LEADING INDEX The leading index for the United States as well as
other composite indices of leading indicators are used by many economists and investors for predicting what is going to happen to the economy in the near future.
Jul '16
Jan '17
Jul '17
Jan '18
Jul '18
Jan '19
GDP Gross Domestic Product (GDP) in the U.S. expanded 2.2% in the 4th
quarter of 2018. Economists expect 1st quarter economic growth to come in around 1.7%. A moderation of growth is likely to follow 2018’s 3% growth in 2019 as the long, mild recovery continues into its 10th year. GDP
Leading Index for the United States 5%
2.0% 1.5%
4%
1.0% % Growth
0.5% 0.0% -0.5% -1.0% -1.5%
3% 2% 1%
-2.0% -2.5%
0%
-3.0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Q1
Q2
Q3
2015
Q4
Q1
Q2
Q3
2016
Q4
Q1
Q2
Q3
2017
Q4
Q1
Q2
Q3
2018
Q4
CURRENT INVESTMENT THEMES
Q1
2019
IN REVIEW
FINANCIALS
FIXED INCOME
BIOPHARMACEUTICALS
Tailwinds continue to support the case for financials, including solid earnings growth, an improved regulatory backdrop, increased M & A activity, and benign credit conditions.
Income oriented investments performed well in the first quarter, and we believe will continue to benefit investors as the federal reserve has lowered expectations for raising rates for the rest of the year.
Bio-tech is unique relative to other sectors in the sense that it can offer investors the potential for growth as well as provide a defensive posture during periods of economic weakness.
CLOSING COMMENTS The U.S economy remains on solid footing although we have entered a lower growth phase of the economic cycle as evidenced by 2018's Q4 2.2% growth. We are likely to see lower growth than the 3%+ growth witnessed in 2018 as we enter the 10th year of the economic expansion. Corporate fundamentals remain solid and mild inflation as seen with as the 2% Consumer Price Index is supportive of the Fed’s gradual approach to normalizing montetary policy. U.S. consumer data is solid with the combination of steadily rising wages and low inflation strengthening purchasing power. The employment market is particularly strong with the unemployment rate holding at its lowest level in nearly five decades. Economists are expecting 1st quarter economic growth to be around 1.7%.
Corporate earnings in the first quarter are expected to face tough year over year comparisons due to last year’s tax cut impact and the stronger U.S. dollar. All of us at Wagner Financial continue to thank you for your confidence and trust. Please reach out to us with any questions or concerns. We appreicate the privilege to serve you as a trusted wealth management firm, and look forward to updating you with our 2019 Q2 in review.
Warm Regards,
Stephen H. Wagner, CFP® Chief Investment Officer
INVESTMENT MANAGEMENT PHILOSOPHY
The complex, ever-changing investment world of today requires an investment process that is overseen by a team of experienced investment professionals. Global capital markets present investors with a host of challenges due to the combination of an overwhelming amount of information to analyze and the endless supply of conflicting opinions and narratives surrounding financial markets. The time and expertise required to perform in-depth investment research and to make timely and informed portfolio management decisions requires both a clear investment process and an experienced investment team to implement the process.
An old adage states that there is accomplishment through many advisors. We agree and embrace a variety of investment perspectives through our investment committee. Our investment philosophy is well grounded in global macro-economic analysis. Investment ideas are carefully vetted through a process which incorporates the diverse range of investment backgrounds within our firm. This process of multifaceted analysis ensures that only the strongest investment ideas survive. We are committed to striking the right balance between risk and return through managing global, multi-asset class investment portfolios.
INDEPENDENCE & CLIENT FOCUS
DIVERSIFICATION
TOP-DOWN, THEMATIC APPROACH
PERFORMANCE WITH LIQUIDITY
VARIED INVESTMENT PERSPECTIVES
OPTIMIZATION OF EXPENSES AND TAXES
INVESTMENT COMMITTEE
The Investment Committee meets formally each quarter, and more frequently if market conditions warrant, to discu allocation and positioning of our portfolios. There’s an art to striking the right balance between risk and return, purs have our interests aligned with our clients as we invest alongside them.
STEPHEN WAGNER
VICTORIA DERBY BREEN
MARTHA LAFF
MARGARET MARAPAO
Investment Advisor, CFP®, CPFA
Investment Advisor & Financial Planner
Investment Advisor, ChFC®, CLU®, CRPC®
Investment Advisor, CFP®
30+ Years Experience*
35+ Years Experience*
30+ Years Experience*
10+ Years Experience*
Q1
2019
IN REVIEW
THE INVESTMENT PROCESS
ASSESSMENT OF GLOBAL ECONOMIC & INVESTMENT ENVIRONMENT
IDENTIFY OPPORTUNITIES
ASSESS & ANALYZE THEMES
RESEARCH INVESTMENT VEHICLES TO FIND EFFECTIVE IMPLEMENTATION
STRATEGIC ASSET ALLOCATION Geographies, Sectors, Capitalizations
INVESTMENT SELECTION Open/Closed End Funds, ETFs, Stocks & Bonds
Q1 INVESTMENT COMMITTEE GUEST SPEAKERS
Peter J. Sackmann CFA, Equity Market Review – Global equity portfolio manager with a B.A. from Yale University and holds the Chartered Financial Analyst designation. Erin Leighty CFA, Bond Market Review – Fixed income strategist focusing on multi-sector fixed income strategies. Erin holds an MBA from the Wharton School of the University of Pennsylvania and an undergraduate degree from the University of Illinois.
ss the state of the global economy and capital markets and to assess the current asset uing that symmetry is the core of our investment philosophy. We are fiduciaries and
THOUGHTFUL INDEPENDENT FIDUCIARIES Wagner Financial has been committed
CHRISTOPHER WAGNER
LAINE DICKISON
Investment Advisor, CPFA
Investment Advisor & Financial Planner
10+ Years Experience*
5+ Years Experience*
to helping individuals, families, and businesses grow, preserve, and distribute wealth since 1987.
196 S Fir Street, Suite 140, Ventura, CA 93001 www.wagnerfinancial.com | (805) 339-0760
Data / statistics cited are provided by the Federal Reserve Bank of St. Louis. The S&P 500 Index or the Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The S&P 500 is a float-weighted index, meaning company market capitalizations are adjusted by the number of shares available for public trading. Investors cannot invest directly in an index. Note: Investors cannot invest directly in an index. These unmanaged indices do not reflect management fees and transaction costs that are associated with most investments. The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries* – excluding the United States. With 1,012 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The Barclays Capital U.S. Aggregate Bond Index is the most common index used to track the performance of investment grade bonds in the U.S. Wagner Financial, Inc. is a Registered Investment Adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Wagner Financial, Inc. and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Wagner Financial, Inc. unless a client service agreement is in place.