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October 2019 Monthly Review

"You Look Mahvelous!"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back 
Such was the catchphrase of Billy Crystal on Saturday Night Live when performing the recurring parody role of Fernando Lamas. Lamas was a smarmy talk-show host who delivered the line when introducing or talking to guests. Like so many other SNL sketches before and since, that line became a media sensation and part of pop culture in the 1980’s. One might have the same reaction when looking at just about any asset class return so far this year. With 5/6ths of the year in the books, it has become increasingly difficult to argue with the numbers. October was no different, as International Equities performed especially well. The case for having a diversified approach, or owning anything other than the big-cap S&P 500 was finally realized. The International Equities doubled the 2.17% return of the S&P for the month. Real Estate continued its positive run both domestically and globally. Various Fixed Income benchmarks grinded out positive returns in October as well. The Bloomberg Barclays U.S. Aggregate, the core benchmark that most look to, is now up nearly 9% YTD. Leveraged Bank Loans is the only asset class in the red for the month in the table above. All of this comes as economies are slowing down around the world. The most recent GDP release for the U.S. showed growth at only 1.9% in the third quarter of 2019. Further, the FOMC cut the Fed Funds rate for the third time this year to try and get in front of the slowdown that they see in the data. To put things into proper perspective, a typical balanced client account would be showing a return of over 12% so far in 2019, while the long-term historical annualized expectation is around 8%...and we have two more months to go in the year. Mahvelous indeed!

A Look Ahead
The mystery question is can we expect to feel this marvelous at the end of the year? We don’t know of course, but should we get some additional clarity on the U.S./China trade situation, it shouldn’t surprise if a positive bounce occurred. That cloud of uncertainty has been weighing on markets for most of the year, and has been one of the sources of increased market volatility when the skies were especially black with negative news. Additionally, the third quarter earnings numbers have been better than many had feared. Granted, the hurdle was lowered with reduced corporate guidance, but better is still better. With over 70% of the companies reporting, 71% have actually beaten consensus expectations. For now, it seems that most market participants are okay with the role the Fed is currently playing. Their about-face earlier this year from a path of rate increases to one of decreases caught many off guard and begged the question, “What do they see that we don’t?” But for now, after the latest cut, their language of pause and “wait and see” seems to have struck the right chord. We have talked consistently about the importance of staying true to your investment allocation over time, especially so when it seems difficult to do. There is no denying that this economic/market expansion is long in the tooth by almost all historical standards and that we probably haven’t regulated our way out of real recessions. There will undoubtedly be some much tougher conversations in the not-so-distant future, but for now…it’s okay to enjoy the mahvelous markets.

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