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Quarterly Comments: November 2019

The end of year story might be said to be a version of “The Three Bears.” With many thanks to Gene Goldman, Cetera Financial Group CIO, and chief investment Guru, I’ll use his artful lens to help frame our understanding of where we are and where the story leads us. So, back to Goldilocks misadventure. Please mentally jump to the part of the story where she samples the porridge – Hot, Cold, and Just right.

We know we are experiencing the longest expansion – ever. We are also enjoying the longest bull market – ever. This is great, No? That’s a maybe. So back to Goldilocks as she experiences the breakfast on offer.

What’s Hot, or what makes for the possibility of further expansion and market growth? There are a surplus of jobs available; specifically there are 1.3 million jobs more than we have qualified job seekers. This bodes well for future employment. Consumer sentiment remains very strong; people are confident they will stay employed and have money to spend. And, inflation by any measure is benign. These are all indications that the economy has room to grow.

What’s Cold, or what is looming as a possible headwind? What might be an indication of a slowdown, or worse, a recession? A key indicator we have mentioned in our Quarterly Call, Listen at Lunch, is that the Manufacturing Purchasing Managers Index (PMI) has declined and is now below 50 – considered an indication of a slowing economy. The CEO sentiment indicators and “Now” spending data from many companies show trends pointing down. The slowing Global economies, as well as the real costs and future uncertainty caused by the trade and tariff disputes are further causes for concern as we look into 2020.

Is there a “Just Right” Bowl? Yes, there is. Inflation is benign and is expected to stay in the lower range for longer. This is very good news for the stock market. Low inflation and low interest rates give the stock market valuations more room to move up. Housing is also a good news story. Housing starts are good and growing; moreover there is no sign of any bubble here. Consumer debt is high, but as a percentage of aggregate disposable income it is manageable. We also see rising productivity, and the Leading Economic Indicators, while trending down, are still positive.

On balance we believe we have sufficient positive indicators that cause us to remain optimistic about the remainder of 2019. The Fed is on our side, providing several rate cuts this year, for one. We expect the trade war will be resolved or at least put into some form of stasis. Both the US and China have many reasons, economic and political, to not escalate tensions further. Markets have generally priced in trade war resolution.

As we transition into 2020, we must note the stock market today is priced for perfection. That is, the price of the stock relative to its earnings is very close to the top of acceptable. Any disruption to earnings could tip the broad market into decidedly overpriced and vulnerable to a selloff. And the (Three) Bears are out there – think Brexit, Impeachment, and further Global slowing.

For the moment, however, I think it's safe to wish all a very Happy Holiday Season, and to expect a successful, or let’s say moderately positive 2020!!

Linda P. Erickson, CFP



The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.


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