January 14, 2020 Market Comment

Ann Miller |

Our Affinity Capital team would like to thank you for the opportunity to serve you with your investments, financial planning and assistance as we coordinate with your estate and tax planning professionals.  Many of our clients have been with us for a decade and some even longer.  We appreciate serving you, our multi-generational clients and extended family, as well as the many referrals you have entrusted to us.  From our families to you, thank you and Happy New Year!

As we begin 2020, the markets continue to perform, and most economic indicators point to prolonged strength.  We expect short-term profit taking place in January, and this is certainly not unusual. Barring any new developments, we let our asset allocation work, and even take this opportunity to rebalance some positions.

We view the markets as fully valued and perhaps a bit overvalued and do not find a great deal of concern in this aspect.  As mentioned above, this is when the market will give up some short-term gains to adjust itself, and as companies begin announcing fourth quarter earnings, a clearer picture will emerge.  While we try to avoid too much financial industry jargon, some examples of what we follow are PE ratios or share price to earnings - both current and forecasted earnings - share price to book value and share price to cash flow. These are just a few of the hundreds of stock market valuation measures.  All are 10% or more above their 25-year averages, and again, normal for a rising market.

It is notable that the markets barely reacted to the recent clash with Iran.  The United States is now a net exporter of oil, so Mideast oil is less critical to us directly, although half of the S&P 500 companies revenue comes from international markets.  The Mideast has been and will continue to be a source of turbulence which will influence the markets.

With regard to impeachment and the 2020 election, the markets do not appear to be swayed either way and remain focused on economic data.  As your investment managers, we do not try to measure the political winds but focus on how the markets may interpret and react to them and the impact on our portfolios.

The 2019 calendar year began with a strong two months and was followed by a strong fourth quarter, with the rest of the year choppy but holding well.  The sell-off in December of 2018 was dramatic and saw the weakest December since the Great Depression.  The rebound rally in January of this year was unusual in its strength.   In this age of computer trading algorithms, we keep in mind the speed with which the markets can react and perhaps over-react.

Last year we had lower allocations devoted to international markets.  As we see stronger commodity markets, a weaker dollar, and stronger foreign currencies we are raising our international weights. 

Finally, we are very pleased with the tax-efficiency of our portfolios as we took great care to manage realized gains and losses.

As always, please feel free to reach out to us with any questions and again, thank you for the opportunity serve you and your family.