February 2019 Market Update

Brian Johnson
Brian Johnson
Chief Investment Officer and Shareholder

By Brian Johnson, Chief Investment Officer and Shareholder

Summary: News has swung to the positive side, with many of the previous uncertainties having been resolved.  This, coupled with the Fed’s policy shift towards patience in raising rates, has led to markets rallying and nearing former highs.  We’ll likely use pullbacks or corrections as opportunities to increase stock exposure.

In last month’s update I noted some of the indicators and events we’ve been watching closely for signs that the market was resuming its long-term uptrend.  

“The question at this point is where we head from here. Evidence is mixed. A recent breadth thrust, most simply explained as a surge in buying across the totality of the market, offers compelling odds that we may have seen the lows of the decline. However, continued political uncertainty stemming from Brexit, a government shutdown, and the tariff dispute with China, coupled with the potential for bearish earnings disappointments, particularly in the U.S., offers evidence to suggest that this market has further to fall before putting in a sustainable low.”

The month of February has provided resolution to many of those uncertainties. Although Brexit has yet to be resolved, the U.S. government shutdown has ended, news and sentiment regarding our tariff dispute with China has become more positive, and bearish earnings disappointments have been limited.  Adding to this positive news was the fact that the Federal Reserve (Fed), stated at their January 30th press conference, “We believe we can best support the economy by being patient before making any future adjustment to policy.” This was interpreted as a clear shift in policy away from the systematic raising of rates towards exercising more caution in the timing and extent of future rate increases.

This positive news, coupled with strong breadth (more stocks participating in the rising stock prices) that I noted in our January comments, have led to U.S. markets rebounding to levels last seen in early November. Many U.S. indices are only a few percent below their all-time highs and it certainly seems as if the worst of this short-term decline is behind us. At this point we are most likely to utilize further pullbacks as buying opportunities. In fact, we’ve already begun the process of moving back to a more “neutral” stock allocation within our Viridian Conservative, Viridian Balanced and Viridian Growth strategies.  For instance we have sold the defensive Consumer Staples position and replaced it with a holding in the more cyclical Consumer Discretionary sector.

Although this piece is market-focused, in order to give you a sense of our thinking, and our reasoning for making (and sometimes not making) changes in your holdings, please remember that your investment approach should remain goals-based.  Your Viridian advisor should have helped make sure that your investment portfolio is allocated among our strategies in a way that is focused on achieving those goals.  Short-term market fluctuations should have no effect on your lifestyle, since the money you need to access in the next few years isn’t in the stock market; it is in low-risk assets.  Money invested for longer-term goals, on the other hand, can afford to be more exposed to stock market risk because it has the benefit of much more time to weather declines. 

As always, if you ever feel that your investments don’t match your needs and goals, please call your advisor to discuss that.  Meanwhile, we truly appreciate the opportunity to serve you.

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