Third Quarter 2018 – Insight & Perspective
Marshall Financial Group is fortunate to partner and develop relationships with so many great individuals, couples and families. These personal relationships provide us the opportunity to seek new solutions, enhance resources and develop more personalized experiences. Like a true partnership, our collective, diverse backgrounds and personalities provide valuable insights and perspectives.
Over the past few months our conversations together have helped provide insight into how some may be feeling about financial markets. The insights we’ve heard, as they relate to investment portfolios, are varying degrees of unease. Unease that markets have increased too much, the current expansion has gone on too long, that outlier events could cause a steep downturn or that something feels different with markets this year. To those who may feel similar unease, we will try to add perspective.
To put it simply, if financial market behavior feels different this year, that’s because it is. Below, we’ve inserted two graphics to make this easier to visualize. The two charts display performance of the fourteen asset classes we follow, 2017 (right) and 2018 (left). With just a quick glance, it’s easy to notice the chart for 2018 covers a larger spectrum of the color wheel, particularly the red shadings, indicating negative returns. Through the third quarter of 2018, five asset classes have experienced declines, compared to zero for calendar year 2017. Additionally, during 2017, seven of the fourteen asset classes we follow experienced market gains of over 10%. In contrast, only three asset classes have experienced such fortune thus far this year. The reasons for such dichotomy vary, but include rising interest rates, a strengthening U.S. dollar, global political tension and effects from tax reform. When constructing portfolios, we anticipate varying asset class performance. This is why diversification remains such an important component of our investment philosophy.
When looking at economic conditions, we continue to believe there is further room for growth, though we are likely closer to the end than the beginning of the current economic expansion. Typically, during the late part an expansion, an investor could expect to see rising stock prices with increased volatility, as well as other conditions that are present today, such as low unemployment and rising interest rates. Looking ahead, economic conditions that could suggest a change in the economy include: sentiment indicators, such as consumer confidence, trending lower; falling corporate profits; short-term interest rates higher than long-term rates; and increases in unemployment. Looking at today’s data, we don’t believe these conditions are present.
As we noted in an earlier e-mail, “Despite the many views that will likely emerge in the media, it’s important to maintain a rational approach rather than an emotional reaction and remember, in aggregate, underlying business conditions and consumer strength remain supportive of economic growth.” We all value insight and perspective and, as part of our partnership together, our Investment Team is always available to address any specific questions you may have.