Wednesday, December 5, 2018

Investment Perspectives: Thoughtful Choice, Balanced Portfolios, and Market Trends

You can read the full Investment Perspectives

In this month's issue:

“The Hour Between Dog and Wolf" Mark Luschini
This unusual title is a French saying from the Middle Ages that refers to dusk, the time after sunset when the light fades and images become less clear. In this window before dark, it is difficult to distinguish between dogs and wolves, friends and enemies. It is also the name of a book, authored by John Coates, in which he describes the transformation the body undertakes when moving from calm to stress. The implication for investors is the physiological change that occurs can lead to good or poor judgements predicated upon one’s ability to make a thoughtful choice under pressure. When the market is misbehaving, as it has been of late, it is all the more important to make sound decisions rather than the costly ones that are often made when under duress.
“Fixed Income and Portfolio Construction: A Rough 2018” Guy LeBas
As 2018 nears its close, an ultimately volatile year for markets by any measure, one market factoid stands out: Returns in every major asset class are close to zero or negative. At the time of penning, the S&P is up less than 2%, and total returns in Treasuries, investment grade corporate bonds, high yield bonds, and even municipal bonds, the best performer of the bunch, are all negative. While we do not talk about commodities much in the fixed income commentary, they too are having a lousy year, in large part on the backs of the recent plunge in oil prices. Another way to describe this phenomenon is that a balanced portfolio did not do what it was supposed to do in 2018; that is, it failed to provide consistent returns via the magic of diversification.

“The Santa Cause" Greg Drahuschak
The first five trading sessions in November offered hope that the equity market could overcome the fifth worst loss for October since 1949. Those initial hopes faded as the S&P 500 fell from an intraday peak last month at 2815 to as low as 2631 the day after Thanksgiving. Comments from Federal Reserve Chairman Jay Powell hinting that the Fed might take a less aggressive approach to interest rate increases enabled the S&P 500 to post a modest gain in November.