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January 2020: Market Update

For those unable to join us for Allegiant’s Market Update at Selby Gardens on January 13th, we had the pleasure of hearing a presentation from Commonwealth’s Chief Investment Officer, Brad McMillan CFA®, CAIA, MAI. Brad is a frequent commentator on financial markets, U.S. economic policy, and the global economy for a range of media outlets, including the Wall Street Journal, CNBC, CNN International, Barron’s, and Bloomberg News. 

Before Brad took the stage, Allegiant’s Senior Wealth Advisor, Melissa Walsh, CFA, CFP®, AIF®, gave a quick update on the recently passed “Secure Act.” The primary impacts from the new legislation are: 

  • Extends the age at which Required Minimum Distributions begin to age 72. This applies to everyone who is not yet 70 ½ on 12/31/2019.
  • Children or grandchildren who inherit IRAs after 12/31/2019 will no longer be able to spread out distributions throughout their lifetimes. Instead, they will be required to deplete the accounts within ten years of inheriting them.
  • Repeals the maximum age to make an IRA contribution. If you’re still working, you’ll be able to make an IRA contribution, much like you are currently able to make a 401(k) contribution. 

Your team at Allegiant Private Advisors is examining what, if any, impact this has on your financial plan, and will be discussing this with you at your next meeting.  

Brad’s presentation, entitled “Beyond the Numbers,” covered a broad range of topics, primarily examining the factors driving recent stock market performance and the current state of, and outlook for, the U.S. economy. Brad started off the discussion by acknowledging the wide range of unnerving headlines that investors are currently seeing on a daily basis. We are dealing with ongoing trade tensions between the U.S. and China, the threat of war with Iran, a pending presidential impeachment, the U.K teetering on the edge of a “hard” Brexit and the looming U.S. national election in November. That certainly seems like a lot to worry about! 

Brad acknowledged that this geopolitical uncertainty bears watching. However, he explained that during times like this, the most appropriate thing for investors to do is take a step back and examine what really matters, which is the underlying economy. 

While many economic commentators have been asserting that these geopolitical risks are sure to bring about a U.S. recession, Brad demurred, arguing that the economic data simply does not support that notion. Brad examined everything from job growth to consumer and business confidence. The conclusion was that the U.S. economy still appears to be on solid footing. While growth has slowed from the fast pace we saw following the tax cuts in 2018, it is still in-line with what we have experienced during the bulk of this economic expansion. The economy continues to be powered by consumer spending, which accounts for 2/3 of GDP. The U.S. consumer remains strong, supported by a robust employment market and elevated consumer confidence. 

Brad went on to explain that even with economic data continuing to be solid, that does not mean that markets may not be volatile. In fact, volatility in the stock market is not a surprising development at all – it is normal. Particularly given that the U.S. stock market is now trading at valuations above long-term averages, we should prepare for potentially more challenging markets over the coming months. Markets have always and will always experience short periods of time with sharp selloffs. If those selloffs are not accompanied by a recession, they generally do not last long. And with economic data still looking solid, the conditions for a protracted bear market are simply not in place.

As always, economic data can change and given that we are now more than ten years into this economic expansion, it is more important than ever to diligently watch for signs that conditions are deteriorating. As stewards of your capital, the Investment and Research team at Allegiant is doing exactly this. We are continuing to look for signs that economic cracks are starting to form and constructing client portfolios that are built to withstand whatever economic storms may be on the horizon, even if it appears that the waters are currently calm. 

If you would like to follow Brad’s blog, click here to read his most recent updates on The Independent Market Observer.

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