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September 2019 Monthly Review

"The Definition of Insanity"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back 
Doing the same thing over and over again and expecting different results. That is the insanity definition that most credit Albert Einstein with. It came to mind recently when thinking about current markets. We use, and have seen that phrase used often in everyday life…and most of us know it to be true. However, it doesn’t mean that we don’t observe it happening around us, or even find ourselves caught smack in the middle of Einstein’s prophetic words. We see it often when it comes to investing. I talked to someone recently who informed me that they had been so uncomfortable since the Great Recession time of 2008-2009 that they liquidated every stock position and went to cash. Unfortunately, they remain there now 10 years later and have missed over a 340% move in the S&P 500, for example. You just can’t make up for those kinds of drastic missteps. And so, even as we grind along into the very late stages of this economic expansion, we are reminded of examples like this and the potential perils they bring to investors. It is also the reason that we highlight a month like September. With various economic numbers sounding recessionary warning bells, and political grenades tossed around like birthday mints, the market churns along. The broad-based S&P 500 was up nearly 2% in the month and 20.55% YTD. International equity markets finally outpaced most of the domestic indices as global central banks continue to show a willingness to ease with historically low interest rates. U.S. real estate continues to be a strong asset class diversifier, delivering a 2.77% return in September, and over 27% for the year. In fact, when looking at the table above, you can’t find an asset class with a negative return for the year. Even the notoriously safe 3 month treasury has returned 1.81% so far in 2019. After a rough patch in the 4th quarter of 2018, which included an historically negative 9% December, domestic equity markets have surprised most experts with an outsized reward over the first 9 months of the year. It is with this in mind that we reinforce the philosophy of developing a sound asset allocation solution, with thoughtful and consistent rebalancing...and sticking to it.

A Look Ahead
We will delve into more specifics in our upcoming quarterly piece, but nothing mentioned above should be taken to mean that we just put blinders on and ignore what is going on around us. Einstein also said, “Logic will get you from point A to B. Imagination will take you everywhere.” We believe the same is true when it comes to investing. We recognize those warning signs mentioned above. The recent ISM Purchasing Managers Index (PMI) dropped to 47.8 in September, pointing to the steepest contraction since June of 2009. We have seen the dreaded yield curve inversion between the 2 and 10 year U.S. Treasury that so many feared happen over the last couple of months. This indicator has come before the last seven recessions. As previously noted, however, it doesn’t tell us much about the timing. Recessions have lagged by as much two years after prior inversions. So, we are mindful about our underlying allocations. We make sure that we have exposure to asset classes that zig when others zag…and we continue to imagine…

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