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January 2020 Monthly Review

"Let It Be"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back

The Beatles were a 1960’s rock band from Liverpool that stormed the United States in 1964 and were integral to the development of Rock and Roll as we know it today. They are regarded as the most influential band of all-time. Let It Be was the 12th and final studio album by the band, and was released fifty years ago in 1970. The title single reached #1 in the U.K. and the U.S. As I heard its soothing melody recently, it occurred to me that we could probably use a little bit of that as we think and talk about the markets. Too often we are preoccupied with either trying to figure out why markets did or did not do a certain thing, or predicting what is going to happen. Much time, money, and manpower is spent in that quest. With all of those resources used, did you hear anyone suggesting that U.S. stock markets would gain 31.5% in 2019? This is not to say that diligent research is not valuable, but rather it is okay…if not preferable sometimes to just let it be. Generally speaking, markets go higher when investors are prone to taking on additional risk, and do the opposite when they become more risk-averse. For whatever reason. In January we saw both, as we started the month off strong with the carry-over from December, but sputtered in the last half of the month as concerns over the global spread of the coronavirus intensified. The large-cap S&P 500 ended the month slightly negative, while International stocks did considerably worse with Developed and Emerging Market equities down 2.09% and 4.66%, respectively. Investors bid up the prices of most fixed income instruments as they sought safer ground causing yields to decline. The ten year U.S. Treasury, for example, went from 1.92% to 1.51% by the end of the month. Core bonds, as measured by the Bloomberg Barclays Aggregate were the saving grace in the month with a positive return of 1.92%. From an economic standpoint, most indicators still look okay. The overall economy is still growing, as the 4th quarter GDP registered +2.1%. Manufacturing numbers are holding steady. Non-farm payroll jobs increased by 225,000 in January versus consensus estimates of 175,000. The actual unemployment rate ticked up to just 3.6%, after months at 3.5%. We may not be humming, but at this stage of the economic cycle, and nearly 12 years since the last recession, the glass is still at least somewhat full…and maybe it is alright to…let it be.

Stock Chart


A Look Ahead

We believe that it is getting late in the game. However, economies and markets can do just fine in the late-game stages. With the impeachment mess in the States behind us, and the Federal Reserve seemingly on hold with short-term interest rates, building blocks are still in place for stocks to perform. We believe a more normal expectation of mid to high single digit returns is reasonable over the next several months. In times of volatility, we can expect Treasuries and other safe-haven securities to help diversify overall portfolio returns. Risks to these outcomes continue to exist. The coronavirus concern is real, and global deaths stand at 810, already outnumbering the 774 attributed to the SARS virus of 2002-03. We are in a presidential election year with a divisive political climate. Many wonder if specific candidates, if elected, may bring the train to a halt. For now, we stay cautiously optimistic for 2020 and monitor developments. Shine until tomorrow…let it be.