Review and Outlook

2018 Year End Review

As the year comes to a close, we’d like to take a moment to reflect and to share some thoughts on the future.  The year 2018 hosted a range of emotions for investors.  US stocks made all-time highs in January before falling by over 10% in February.  After climbing back to a new high in September, the market again fell by more than 10% in October, and continued to flounder in December, posting their worst quarterly decline in nearly in over a decade. 

The total return for US stocks, as measured by the S&P 500, was around -5% on the year, which was actually a bright spot for global markets.  The S&P 500 was the second-best performing stock market index of the 30 major indices tracked by Morningstar research.  India boasted the only market index with a positive return on the year.  The return for foreign stock markets was -14%, as measured by the MSCI EAFE.

Generally, when stocks struggle, certain other assets like bonds and gold pick up the slack.  However, that wasn’t the case in 2018.  Bonds, finished the year flat, as measured by the Barclays Agg.  Gold prices finished the year around 3% lower. 

2019 Outlook

So, how does one decide where to allocate money in 2019?

  1. Despite the recent pullback US stocks still appear expensive relative to foreign stocks.

  2. The US economy appears to be in the later innings of an economic cycle in which we typically see a pickup in inflation, when stocks in the energy / materials sector generally do relatively well.

  3. Non-traditional asset classes like precious metals appear relatively attractive based on current price.

2018 was a year with more unknowns than we’ve seen in a while, most notably related to trade tensions, fiscal stimulus, interest rate concerns, and political jockeying.  We anticipate much of the same for 2019.

We continue to believe that we’re in the late innings of the economic cycle and will likely see a recession within the next 18 months, coupled with a notable decline in many stock prices.  For this reason, we plan to maintain a conservative stock allocation in coming months. 

There’s an old stock market adage, “They don’t ring a bell at the top,” which is well worth heeding as we enter into the New Year.  We will adhere to our stated investment strategy, with objective rules and risk management dictating our actions, rather than falling prey to emotions and hunches.  We continue to appreciate your trust and confidence and look forward to many more prosperous years to come.

We take great care in stewarding the assets that you and your family have entrusted us to manage.  During the holidays we are especially aware of just how blessed we are to work with such trusting and generous families.  We are truly grateful for you and wish you continued blessings in the coming year!

Any opinions are those Brady Raanes and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.