June 2019 Market Commentary


In Q4 of 2018 we experienced the worst performance in any Q4 since the Great Depression (Source: FactSet).  In Q1 2019 we had the best start to a year in decades.  Since then the markets have pulled back, bringing us to where we are now. The question on everyone’s mind is: “Are we headed into a recession?” Our take is that we are not and here’s why.

In our previous October 2018 commentary we argued that we were not going to see a recession in 2019. We based this on the fact that corporate earnings were continuing to rise. That said, our trend-following signal* went negative on November 3, 2018.  So, what’s going on? It is our opinion that the market is still in a correction phase, as opposed to being in a bear market.

Market history tells us that the highest correlation to predicting recessions is declining corporate earnings.  For Q1 of 2019 corporate earnings came in flat, verses 24.6% growth in Q1 of 2018.  While early analysts’ EPS estimates for Q2 are coming in at negative 2.1%, keep in mind that companies have a tendency to beat analysts’ estimates (Source: FactSet).  These same analysts are forecasting positive EPS growth for the remainder of 2019.

Ø  Our resulting conclusion is that we are still in a correction, not a bear market.  What does that mean to you?  We continue to hold cash in portfolios, thereby maintaining a defensive posture.  

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*Our trend-following signal is a momentum indicator that shows the relationship between two moving averages.             

+ Past performance is not indicative of future results.