Justified optimism. Those two words summarize our view of the year, especially as it relates to global equity market activity and that of consumer health. The start of the year proved to be rather tumultuous following the equity market volatility in December 2018, yet the underlying economic fundamentals failed to signal sustained risks. The following excerpt is from our January 4th, 2019, weekly market commentary, which can be found on our website. “The New Year appears to have started on the right economic foot, so to speak. Although we’ve been proponents of favoring equity market participation throughout the entire downside volatility in late 2018, developments during the first week of the year  have further substantiated our stance that a true systemic risk does not exist to justify a continued and elongated risk-off environment.” The underlying message in that first weekly market commentary centered on the maintained fiscal health of consumers alongside a thriving labor market as well as sustained economic fundamentals. Such objective and quantifiable factors remained the dominant reasons for us favoring risk assets, such as equities. We’ll be the first to admit that we did not know the upside was going to be as pronounced as what we have experienced but we were also convinced that the fuel for optimism rested in the hands of strong corporate balance sheets. A consumer base willing to sustainably prop the economy higher was also a tremendous added positive. Our view for 2020 remains little changed. The fundamental building blocks for economic growth, and for potential upside in earnings, have yet to showcase stress signs that could cause systemic risks. The idea that trade outcomes with China could derail economic activity appear to be stretched, in our view, when we consider the fact that all developments in that arena remain highly uncertain. Unlike risk, which can often be quantifiable, uncertainty cannot. In looking back through our 51 weekly commentaries in 2019, trade related uncertainties are observable in nearly all of them (some to a light extent while others are engulfed in such analysis). Using the trade uncertainty as a factor for determining equity market participation could easily spell disaster, as would have been the case in 2019. We’ll be keeping a close eye on all opportunities in 2020 and will maintain our grounded sense of risk management as the first defense in the face of volatility. Please reference our ‘View of 2020’ on our website for a breakdown of the things we’re optimistic for in the new year as well as those things for which we believe contain risks and uncertainties.
As the year comes to an end, equity market forecasts for 2020 have become readily available across various media outlets as pundits are at it once again. They’re delivering forecasts through the eyes of a crystal ball that is often embedded with subjectivity, not to mention that the effectiveness of such forecasts carries little statistical significance over time. Caution is warranted when using such data with an actionable mindset. Volatility is rarely ever spelled out and the idea of market timing has never been effectively executed by anyone in the history of the equity market’s existence. The most effective approach to investment management, in our view, starts with a living and breathing financial plan that is coupled with a risk centric multiple strategy investment platform. By employing a systemic based approach to asset allocation, which entails all facets of global exposure as well as individual equity exposure, along multiple market cycles, the outcome may often be more desirable. Such an effective and non-emotional process is a fundamental belief of Credent Wealth Management.
Edison Byzyka, CFA – Chief Investment Officer – Chair of the Investment Policy Committee
Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted.
All return data sourced from Bloomberg. All other data soured from Bloomberg, through the release of monthly figures from the Department of Labor, Bureau of Economic/Labor Statistics, U.S. Census Bureau, or from the Federal Reserve and any of its affiliated regional locations.
Small Business Optimism sourced through NFIB. Consumer sentiment sourced through the University of Michigan.
Earnings data sourced through Bloomberg Intelligence and through Bloomberg’ earnings analysis composites.