Broker Check

The Ease of Pessimism

| January 21, 2019
Share |

News of an economic slowdown have remained rampant over the past week, despite strong global equity market performance.  The fact remains, however, that taking a pessimistic stance on the current economic landscape is very easy, which is something we urge extreme caution on .  Headline news have generated an ability for many investors to generate a broad negative assessment with little in-depth data to both justify and quantify what may be happening.  The reality is that no single business cycle remains active indefinitely.  All such cycles do come to a near-term end before the next one begins.  Such cycle behavior has been evident and active over the past 100 years.  With that concept in mind, the recent data releases from European Central Bank (ECB) and from the International Monetary Fund (IMF), which indicate one of the worst slowdowns of the past five years in the European Union, may be indicating that a possible shift in the cycle has the potential to take place.  Is this bad?  What’s the severity of it?  How long may it last?  Those are the questions in which a data driven approach can help mitigate risk and help investors take advantage of opportunities.  The multiple strategy investment platform at Credent Wealth Management takes such risk centric questions into high regard when developing strategy allocations and tactical adjustments.  Our analysis indicates that risks are evident, as is always the case, but there remains no single fundamental and systemic risk that can completely derail growth in the near-term.  The current depth of idiosyncratic risks allows for a more robust risk management approach given that pockets of risks remain strong, yet the broad risk landscape remains favorable.  By generating a general idea of where such risk pockets are booming, and by being able to segregate headlines news into objective data points, we have an ability to remain vigilant across our platform. 

It remains important to note that one of the comments from the latest IMF report on global growth dealt with the U.S. – China trade tensions, in addition to the short-term impact that the government shutdown may have, as risks to growth in 2019.  The fact that hopes remain high for better trade negotiations was cited as a positive subjective assessment for growth.  In fact, looking ahead to 2020, the IMF sees stronger economic growth, despite the current environment (i.e. the cycle shifts and then continues).  Having said all of that, we urge caution in over-dependency of such global growth forecasts.  The IMF adjusts their growth measures multiple times throughout the year and there remains no statistically significant link that their projections have generated positive actionable steps to mitigate equity market downside. 

On that note, global equity markets gained firm footing during the week with the FTSE All World Equity Index, which is comprised of 60% U.S. equities and the remainder across developed international economies, gaining 2.15%.  For the year, the index is positive by 6.10%.  Domestically, the Standard & Poor’s (S&P) 500 gained 2.90% for the week.  Given that 76% of the global gross domestic product (GDP) is generated outside of the U.S., we feel more comfortable assessing equity market health with the FTSE All World index rather than purely focusing on domestic indices.  Avoiding home country bias remains a critical component of assessing and generating appropriate risk levels across our multiple investment strategy platform. 

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.

Share |