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Business Conditions Update 2/04/19

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” - Warren Buffett

February 4, 2019 — In spite of the recent government shutdown which has now since ended, equity markets have rallied strongly from Q4 2018 lows and business conditions have improved based upon the Aruoba-Diebold-Scotti Business Conditions Index.

We continue to advise long term investors to look past recent down markets and volatility. As we have stated many times, we continue to view underlying economic conditions in the US economy as favorable for growth and believe declines are likely to be followed by swift recoveries. Those who viewed the decline in equity prices at the end of 2018 as a buying opportunity have been rewarded. Through January 31, 2019, the S&P 500 has snapped back 8.01%. Our longest running strategy, Curran Core Growth, has gained 9.02% year to date, net of fees. We have stated and continue to affirm since 2009, “Get Ready for a Great Bull Market”.

Corrections and market downturns are normal. However, when investors focus too much on the probability of market declines, they often miss big upward moves in prices that follow. That has certainly been the case since 2009. Since the S&P 500 recorded its low in 2009, the average has quadrupled and continues to trend in a positive direction.

We are pleased to see conditions have increased from 0 for the index. If conditions become too good for too long, it would be alerting us to a possibility the economy is benefiting from factors that usually prove to be unsustainable. You can see that each time positive numbers are reported, there follows a move lower. For us, we see it as indicating the economy is not too “hot”. We prefer warm and that is what the readings continue to tell us.

During times when the economy is expanding, like the present, lines consistently above 0 would be of some concern. Since 2008, conditions have clearly improved but have never consistently been above 0.

Eventually we will see consistently good conditions with readings between 1 and 2. When that happens our expectation would be the economy has reached a point when continued sustained growth is not likely.  It is when mostly positive conditions exist when the economy would tend to overheat with declines in stock prices more likely.

It is our view extreme negative conditions like those we experienced in 2008 are not likely in the near term. Our investment advice remains unchanged. We favor stocks over fixed income.

Each investor’s unique circumstances require an asset allocation based upon goals and tolerance for risk.  Whatever that may be, we continue to advise that portion in equities be fully invested and the portion allocated to fixed income to be high quality and short duration.  As always the long-term risk/ reward favors equities.  

Fixed income offers little in regard to real returns and in many cases negative real returns. High quality short-term fixed income securities do offer portfolio diversification along with reduced portfolio volatility.  For those who have elected to achieve income goals by reducing quality and extending maturity, we believe the strategy will prove costly and frightening.  There is little reward and big risk in long term bonds of all quality.

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Thomas J. Curran           Kevin T. Curran, CFA
CEO & Founder               President & CIO

Please check with your tax advisor, your Curran Wealth relationship manager,or contact Curran Wealth Management if you have any questions.  
518.391.4200
info@curranllc.com


The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness. It is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  CIM, LLC does not provide tax or legal advice.  No one connected with CIM, LLC can ensure tax consequences of any transaction.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.