As a kid, I took everything to the extreme. Whether it was collecting baseball cards, wrestling, or fishing I had the attitude that you cannot get too much of a good thing. As I grew up, I started to realize even the most positive and constructive things in our lives, when taken too far, can be damaging or even destructive. Hard work, exercise, money and adventure are a few examples. We have all heard the saying, “Too much of a good thing is...a bad thing” and I am sure all of you can think of a time when you experienced this cliche firsthand. What if I told you this is one of the biggest reasons the market has been so volatile lately?
The economy and particularly the job market are doing well. While this is a very good thing, too much wage growth too quickly can cause problems including inflation. Furthermore, an improving labor market could begin to expose the talent gap that exists in certain industries where there are not enough workers. It is a classic “too much of a good thing” scenario. Let’s be clear; very few believe the economy and job market are overstimulated right now, but there are plenty concerned it will happen. If this does happen, the Federal Reserve will be forced to raise interest rates faster in an attempt to cool things off and that, too, will have a negative effect on the economy. It seems silly for the market to go down on concerns that the job market or economy may become “too good”, but this is how the market works. It is constantly trying to anticipate future outcomes - good and bad.
Since the stock market bottomed out in March of 2009, it has had exceptional growth. Again, this is a wonderful thing and you won’t hear us complaining about it; but this, too, has consequences. When the market has a long stretch of good returns, it tends to get “expensive”. Most valuation methods (Price to Earnings ratio (P/E), Price to Book (P/B), etc.) are telling us that the US stock market is expensive right now. Additionally, every good run comes to an end and there are some who are concerned this run will be ending soon. To be fair, though, there were plenty who had the same belief 3, 4 and even 5 years ago. Think about the returns they’ve missed out on if they tried to time the market!
Of course, fear of a trade war, problems with the technology sector, and the current political landscape are also causing some of the volatility in the market. It is our belief, however, that the previously mentioned items are more important for long-term investors.
With all of that said, most asset classes held their own in the 1st quarter (see below). Most notably, US Growth oriented stocks and Emerging Market Stocks posted small gains. Real Estate and Long Term Bonds posted the largest losses for the quarter at 5.9% and 3.3%, respectively, but most asset classes lost less than 2%. Furthermore, the economy is steady, the housing market is great, interest rates and inflation are reasonable, Europe has stabilized, and the job market is strong.
In the end, good investing is about putting and keeping the odds in your favor over long periods of time. We strongly believe the best way to keep these odds in your favor is with a well-balanced, globally diversified portfolio that matches your risk tolerance. This is exactly what we strive to do for you every day.
1st Quarter Performance
US Large Cap Stocks (S&P 500)
US Mid Cap Stocks (Russell MidCap)
US Small Cap Stocks (Russell 2000)
US Value Stocks (Russell 1000 Value)
US Growth Stocks (Russell 1000 Growth)
International Developed Stocks (MSCI EAFE)
Emerging Market Stocks (MSCI EM)
US Bonds (Bloomberg Barclays US Agg Bond)
Long-Term Treasury Bonds (BB US Treasury: Long)
Real Estate (DJ US Real Estate)
Thank you for your business and as always, should you have any questions or concerns we at FSG are here to help, listen and guide.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.