What do our latest market cycle and economic environment look like? And what do they mean for investors? The first quarter of 2019 ended up being one of the best first quarters for the market since 1998. Our Chief Investment Officer, John Cox, shares his expert perspective on what brought us to this strong quarter and offers advice on how investors can weather possible market challenges to come.
Watch this short video or read the transcript below for a first quarter 2019 market review and outlook.
Shannon Parker: Hello, everyone. My name is Shannon Parker, and I am the Marketing Manager with WA Asset Management. I’m here today with John Cox, our Chief Investment Officer, and he’s going to give us a brief update on the economy and the investment markets. So, John, the fourth quarter of 2018 and the first quarter of 2019 were two very different environments for the markets. Will you elaborate on why the fourth quarter was so challenging, yet the first quarter was one of the best we have seen in many years?
John Cox: Thanks for that question, Shannon. It’s always good to recap how we got to where we are today. So, if you remember back in the fourth quarter of 2018, there were discussions between the Chinese and U.S. trade negotiators, and those discussions were not going well. There was concern about the Federal Reserve raising interest rates to the point of the U.S. economy potentially going into a recession, and there was bad news coming out of Europe with respect to BREXIT. So, October was a poor month for the markets, November was kind of a sideways month, and in December, we experienced a very significant decline in the markets and a lot of panic. It’s good that investors sometimes have short term-memories because with the start of the new year, there was a renewed sense of optimism about the status of the U.S./China trade negotiations, the Federal Reserve Chairman Powell came out and said that he would exercise flexibility with regards to interest rates, so that took the imminent threat of recession off the board for the U.S., and there was some fairly positive news coming out of Europe. This led to market strength in January, which continued into February and March. So, the first quarter ended up being one of the best first quarters for the market since 1998.
Shannon Parker: That’s great, John. Thank you. What have been the best performing asset classes so far in 2019?
John Cox: So, U.S. stocks have been the outperformers. In particular, small- to midsize-company stocks returned about 15% for the quarter. U.S. large cap stocks returned about 14%. Overseas emerging markets and develop market equities returned about 10%. So, you can see, kind of across the board global equities had a really strong quarter, and even fixed income did well with bonds returning about 3%.
Shannon Parker: That’s great. What are some challenges still facing the markets in the short term?
John Cox: There will always be challenges for the markets, and these challenges will create market volatility and investor anxiety. And that’s what typically leads to good investment opportunities. Currently, the most pressing matter for investors is the threat of a global slow down. We’ve had a very good market and economic environment for the last decade, and usually market cycles don’t last more than ten years. So, there’s concern that we could be facing the downturn, but nobody knows when that might happen. So, the best advice is to stay invested and focus on your long-term investment goals.
Shannon Parker: Sounds great. In your recent market commentary you talked about the similarities in the seasons of the year and the investment markets. Will you expound on that concept?
John Cox: We feel like there are a lot of similarities between the seasons and market cycles. So, if you think about my favorite time of the year, which is spring, you have to go through winter to make it to spring. So, you have some dreary, cold winter months, just like you have some difficult market environments, but you can’t fast forward past the bad to get to the good. So, investors have to be patient and focus on the long term.
Shannon Parker: Great. Thank you so much for the update. Thank you everyone for listening, and we look forward to giving you our next quarterly update.